What To Expect From Factoring Your Invoices
As a business owner, there are many budgetary issues you are going to experience that fall outside of your immediate control. When customers are late on paying for services you have completed, it might cause issues with your access to working capital. This, in turn, prevents you from covering basic operating expenses and taking advantage of opportunities to grow your establishment. Fortunately, alternative financing solutions like factoring can provide you with a practical way of taking care of the growing pile of invoices on your desk. Look over these points to learn more about this service.
The Basic Process
Also known as accounts receivable financing, the decision to factor your invoices is not a complicated one to understand. A company specializing in A/R financing will evaluate your invoices and determine if they qualify for the service. If so, you will receive a percentage of the value of the invoices as an advance. The company will then collect the debt on your behalf and provide you with the difference you are owed, minus a fee for the service. This is a useful way to boost your capital in a pinch and take care of negligent payments in one swoop.
Key Benefits of A/R Financing
There are several advantages to using factoring to take care of your unpaid invoices. For one, you receive a payment on money you might otherwise be waiting a long time for. This can stimulate your cash flow and help you maintain operations through a period where the budget is restricted. Additionally, it is an advance instead of a loan. You will not take on more debt by pursuing this option. This alone can be a huge perk for organizations looking to avoid accruing additional debt at a time when finances are already problematic.
Drawbacks and Considerations
As with any alternative financing service, A/R financing comes with a handful of considerations. Not all invoices will qualify for the service. In most cases, only invoices from clients affiliated with the government or other large entities will be deemed eligible. The lender wants to ensure repayment, meaning invoices from individuals, small businesses, or relatively unknown organizations will not be approved in most cases. For some, the fees associated with the service can also be steep and might be a reason to pursue other options instead.
In order for your business to maintain the course, you need to know where to turn when your finances are disrupted. Look into alternative financing solutions like factoring to determine where or not this is a practical service for your business.