You've delivered the goods or completed the work, submitted the invoice (with net 30-day payment terms) and the waiting begins. If your company is strapped for liquid cash, in need of more predictable revenue and cash flow or is experiencing growth, that 30-day delay can wreak havoc on your budget and make it difficult to purchase needed supplies, meet obligations or cope with emergencies.
Fortunately, there is a way to eliminate that wait and access funds for services rendered or goods sold nearly instantly. Learning more about factoring can help your business maintain predictable, reliable cash flow and remove the stress of waiting for payment before moving forward.
What is Invoice Factoring?
Invoice factoring makes it easy for businesses of all sizes to manage cash flow and revenues. It is most often used by B2B companies that extend credit or terms to other businesses.
Once an invoice is sent to a customer, they usually have a set period of time, often 30 days, to make their payment. Since an invoice is not generated until the work is complete or the products are delivered, there is usually a gap of time between the completion of work, the invoice generation, and the actual payment.
This delay can make it challenging for the service provider to meet pay cycle needs, purchase new supplies or simply continue to operate, particularly if they are new or growing and need the revenues they’ve earned as swiftly as possible. Factoring allows the company to be paid on their generated invoices, eliminating the 30+ day wait for payment and ensuring that revenues continue to flow.
A company that uses a factor to improve cash flow can submit the invoice to the factoring company; they will then be paid right away, eliminating the typical waiting time and improving cash flow. The factor then waits for the invoice to be paid and is reimbursed; they charge a fee for this service, then send the remaining funds to the client.
How Does Factoring Help Businesses?
Factoring makes funds that are due for services already rendered or products delivered available immediately; the business no longer has to wait to get paid. This allows them to be more agile and to continue moving forward without waiting for payments to arrive.
If you typically have to borrow funds or delay the launch of a new delivery because you are waiting to be paid, factoring can have a significant impact on your ability to keep moving forward and to deliver on time.
Factoring improves flexibility and liquidity and makes it easier for internal AR departments to manage funds. It also helps a growing business continue to expand since the needs of a company that is scaling up often mean more money is needed – as quickly as possible – to support growth.
Why Choose Factoring?
While there are other options, including applying for loans to cover the time between delivery and payment and even selling some of the business to another party, most businesses choose factoring to ensure prompt payment without delay.
Loans take time to be approved, and most business owners do not want to give up ownership just to keep the cash flowing. In some cases, a company won’t qualify for loans at all.
Which Businesses Benefit From Factoring?
Businesses in a variety of industries can benefit from factoring; any industry that offers payment terms to their business customers for services and/or products received.
The longer the time period between sending out an invoice for work completed and having to pay your own bills, the more you will benefit from the swift payment offered by a factoring company.
The businesses that benefit most from factoring are those in industries that typically extend credit terms of 30 to 90 day to business customers and then have to pay their own bills before the funds actually arrive.
Companies with large staff or those that hire contractors, shipping and transportation companies, manufacturers, and those that require ongoing, steady flow of consumables for production all benefit from factoring. Any business that needs immediate payments to function can benefit from the reliable cash flow afforded by factoring.
Get Reliable Cash Flow with Factoring
Since a factor will be handling your funds and advancing payments, they must be able to perform as expected and promptly pay you for invoices. They also need to be able to provide you with steady cash flow and access to your liquid assets. Above all, they must offer outstanding service and be on hand to swiftly and accurately answer any questions.
Working with a quality factor can have a huge impact on your business and improve not only your cash flow but your overall business health and well being -- provided you choose the right team for the job. If immediate access to your funds would help you manage your business, we can help. Get in touch today to learn what UC Factors can do for you and to take advantage of the benefits of factoring.
One of the most important parts of invoice factoring is making sure you choose the right factor to work with. Learn how to choose an invoice factoring company here: