The vast majority of small businesses do not have a significant reserve of working capital. When they are involved in B2B (business to business) or B2G (business to government) sales or services, they are typically paid on an invoice with terms of 30, 60 or sometimes up to 90 days.
This means that the small business has to pay for the inventory, the labor and the product or service provided and then wait for one to three months for payment. In the gap in that time, inventory is depleted, payroll still has to be made and the business must be kept operational.
To overcome this temporary cash flow issue, many business owners turn to invoice factoring services. This allows a business to get cash on those accounts receivables from the factor very quickly. While the exact time to process the application may vary, it is possible to have cash the same business day.
The Benefits
There are several important benefits to using invoice factoring services. As this is not a loan, there is no repayment or interest. Additionally, top factors don’t charge any hidden fees other than their quoted standard rate so budgeting is easy.
Common reasons to use invoice factoring services include:
Speed of the process
No complicated loan process and no interest to repay
Cash on hand to replenish invoice, pay employees or add new staff and equipment
Ability to take on new contracts without having to wait for payment from work already completed
Ability to pay off suppliers quickly, often earning additional discounts
Another feature to consider with factoring is the role the factor plays in managing the accounts receivable. Once the factor accepts the accounts you no longer have to worry about collection and management, the factor will complete all that as part of the service.
