Factoring receivables have proved to be very beneficial to so many businesses because you have access to cash virtually immediately. There are several reasons why companies choose to use factoring receivables. Though it is a system any business can use, it is more common among small to medium sized businesses.
If a business has a cash flow shortage, for example, if a customer has not paid yet, then the business won’t have the money until it is paid, so this system is popular because the business can get their money through factoring receivables and carry on, rather than chase customer after customer. Take a look at some of the benefits of doing this.
1. Quick Payment On Your Accounts Receivable
Once you submit a qualified invoice to the factoring company, you will receive your money upfront. This is pretty fast, which is exactly what you want for your business. If a business can receive money in a day, or if they could receive money in six weeks, which option do you think they would take? The fast cash payment is very attractive as they can have cash in hand to carry on. Loans and lines of credit are not attractive to these companies. They may not even be approved. This method is not a loan, so it is a great option.
2. Factoring Companies Free You Up
A factoring company will free up your time, time that can be spent on your business, rather than chasing down customers who do not pay on time. The factoring company buys the invoice from you, so you get paid and you can move on. It is the factoring company who will now take over and chase down these customers, because the customers now owe THEM the money and not you. You and your staff can carry on with business as usual as it no longer concerns you.
3. Unlimited Potential
Factoring allows your business and sales to grow along with it. Once your sales increase, so will your receivables which means you have access to more cash. This is beneficial because you have the ability to constantly meet rising demands.
4. You’re Not In Debt
It is important to remember that you are actually not in debt when you partner with a factoring company. With a bank loan, you are in debt because you are borrowing money, whereas with this method, you are getting money that is yours. The factoring company pays you the money owed in the invoice. The customer now owes the factoring company, because the factoring company has bought the invoice from you. That means your balance sheet will be in good standing.
5. Easier Application
The application process is easy and faster than if you had to go to a bank to borrow money. With a bank, you will need to go through thorough credit checks. You may also have to put up some form of collateral.
This method has even more benefits which you will soon realize for yourself. For example, suppliers may offer discounts for early payment. If you are chasing a customer and don’t have the capital, you cannot take advantage of this. If, on the other hand, the factoring company gives you this capital, then you can pay your suppliers and take advantage of lower prices. These savings can have a positive impact on your bottom line so you can take your business from strength to strength.