Invoice factoring is particularly suitable for small businesses that have low cash flow because of outstanding invoices. It provides you with immediate cash that can help with running the business. But before we explore some of the reasons why you should consider invoice factoring, let’s first understand what invoice factoring entails.
What is invoice factoring?
Invoice factoring involves turning outstanding invoices into cash for immediate use. The process is simple and quick. The process goes like this; the business owner sells his or her outstanding invoices to an invoice factoring company that pays a lump sum, usually between 70%-90% of the total invoice.
Invoice factoring can help businesses acquire the cash they need to keep the business running smoothly. So businesses don’t have to wait for up to 90 days for their customers to make payments. When they contact an invoice company, they will get the cash they need within a few days.
Why you should consider invoice factoring
Here are reasons why you should consider invoice factoring:
- Instant cash flow
One of the main reasons why business owners should consider invoice factoring is because it gives them instant cash flow. When you need cash and decide to apply for a loan, it will take months for it to get approved. Chances are also that your loan application may be denied. But if your application is approved, it may again take more time for you to receive the loan.
But with invoice factoring, you will get access to cash as quickly as possible so that your business can keep running as smoothly as it can. Invoice factoring is the best alternative if you need money for your business and you cannot afford to wait weeks or months to get your loan approval or for your customers to pay you.
- You are the controller
Another reason why you should consider factoring your invoice is that this process allows you to take full control over everything. You are the only person who can decide how many invoices you want to factor, when you want to factor them, who to factor them to, and what you will do with the money after factoring your invoice. This full control comes with great flexibility.
- Your business will not incur any debt
With invoice factoring, your business will not incur any debt. You won’t pay anyone for generating cash. One thing you need to remember is that invoice factoring is not a loan; it is basically the amount of money your business will receive in the future from your customers. A factoring company can pay you up to 90% of the value on your invoices.
- Invoice factoring does not require any collateral
When it comes to loans or any other source of finance, you will have to submit collateral to secure it, but this is not the case with invoice factoring- it does not require any collateral. The invoice is what basically acts as collateral, meaning that you will not have to submit house, equipment, or anything valuable to act as collateral.