Would Your Business Benefit From Invoice Factoring?

Invoice-based accounting is popular for many businesses because it provides you flexibility when dealing with customers, and that’s a big benefit if your average order for goods or services runs to a substantial sum. The invoicing window provides consumer customers a chance to line up financing and for companies serving other businesses, it acknowledges the cash flow realities that companies face. Unfortunately, it also makes your own income unpredictable at times. There are cash flow financing options available to help with that, but if you want to streamline your business, factoring provides an option that frequently works better than financing for small businesses.

Why Work With a Factor?

When you use this option, you aren’t taking out a cash advance on your invoices, you’re selling them off your books. As a result, you can confidently close out the account and move on, simplifying your collection process and providing you with consistent income. If you do it often enough, you can essentially outsource your entire receivables process, and the more consistently you work with a factor, the easier it is to get great terms on the agreement. It’s true that this option means accepting less than the face value of the invoice, but it’s also true that fees are generally quite consistent when you build a relationship with a single service that can grow to know your business, so you can work the cost into estimates and quotes.

Communicating With Customers

If you’re using this option to streamline your receivables and make your cash flow consistent, it’s important that you communicate this to customers when you notify them to pay the financing service instead of your company. It’s easy for business managers and owners to misunderstand the act as sending the bill to collections, which can strain relationships if you seek factoring for invoices that are still fresh. Since using fresh invoices and doing them all at once is the best way to control costs, that’s not usually the case for companies that regularly use this service, and your customers need to know that. Simply saying that you’ve outsourced receivables and providing the new contact information is enough to set minds at ease.

Benefits of Consistent Cash Flow

It feels a bit obvious, but when you can count on income to cover your outgoing commitments at consistent intervals, it’s a lot easier to run your company without fits and starts. That also makes it easier to grow and to take risks. Most importantly, though, it’s a chance to focus your work on your core business, allowing you to put your effort into being competitive in an ever-tightening market environment. If your company uses invoice accounting and you’re looking for cash flow options that don’t require a lot of administrative maintenance, you’d probably benefit from factoring.