Top 10 Reasons to Factor Your Invoices
Invoice factoring is a smart and straightforward method of raising immediate cash for your business. There are many reasons to consider invoice factoring if your business is interested in an alternative to a traditional bank loan.
Following are the Top 10 reasons to consider factoring your invoices, in no particular order:
- With invoice factoring, your business does not incur debt. When your business factors its invoices, it does not incur any type of debt that must be repaid. Invoice factoring is not the same as a loan. With a loan, your business must make monthly payments until the loan is paid in full. With invoice factoring, your business sells its invoices to an invoice factoring company in exchange for a percentage of the value of the invoices. This results in an immediate influx of cash, and avoidance of a huge debt on your balance sheet.
- Invoice factoring allows you to pick and choose which invoices you want to factor, and how many invoices to factor. Essentially, your company has the ultimate control on which invoices it wants to sell to an invoice factoring company. As little as one invoice can be factored, and as many as all invoices can be factored (assuming all of the invoices are qualified). Having this type of flexibility and control is a highly desirable feature of the invoice factoring method of raising cash.
- Qualifying for a bank loan can be difficult and time consuming. Why spend your time and effort trying to qualify for a loan when you know your business does not have the required credit or collateral? Invoice factoring does not require your business to qualify for a loan. If your customers are creditworthy, their invoices should be eligible for invoice factoring.
- Your business can drastically reduce the amount of time it spends on accounts receivables management. When you sell your invoices to an invoice factoring company, the invoice factoring company takes over the accounts receivables responsibilities. Therefore, your business no longer has to pay employees to focus on accounts receivables, collections, and all of the associated paperwork.
- Invoice factoring is cost-efficient and cost-effective. When you elect to factor your invoices, you are selling them to an invoice factoring company. The factoring company pays you for the invoices, and you pay a fee for each one that is factored when the invoice is paid. The fee is usually quite reasonable, and maybe equal to less than you would pay in interest on a bank loan.
- You do not have to wait three months or more for invoices to be paid. Customers of many businesses do not pay their outstanding invoices for 30, 60 or 90 days. This can be a problem for a business in need of immediate cash. When invoices are factored, cash is made available almost immediately, and there is not a prolonged waiting period.
- Invoice factoring allows your company to grow faster. When you factor your invoices, you have cash available to take advantage of opportunities when they arise. You may use the cash as you choose. Without invoice factoring, your business might have to wait months for the cash it needs to move forward. Without cash on hand, opportunities can be lost.
- A factoring company will not tell you how to run your business. When you elect to sell your invoices to a factoring company, the factoring company does its job – but does not get involved in running your business. Therefore, invoice factoring provides your company with cash, but does not result in the need to involve an outside company in the day-to-day operations of your business. In other words, a factoring company does not have a say in how you spend the cash you raise by selling your invoices.
- A continuous flow of cash is important to any business. All businesses have a constant need for cash in order to keep operations running smoothly. With invoice factoring, invoices can be sold to a factoring company as soon as they are available. There is no need to wait until the end of the year to sell invoices to a factoring company. The process is on-going, which results in a constant flow of cash.
- Most importantly, your company can make more money if you factor! The immediate cash invoice factoring provides allows you to more quickly and completely respond to customer needs, and take on more orders or new projects. You may also be able to take advantage of vendor discounts and favorable supply opportunities.
Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.