Run Your Business More Effectively: Many business owners don’t hear about invoice factoring until they run into a cash flow crunch and need working capital to cover an expense. However, it’s a valuable tool that can help businesses run more effectively overall. We’ll go over the basics of factoring and what makes it such a powerful and versatile tool below.
How Factoring Works
Also referred to as receivable financing, invoice factoring converts outstanding invoices your customers might ordinarily pay in 30, 60, 90, or more days into instant cash your business can use right away.
Signing up with a factoring company, sometimes simply called a “factor,” is the first step. Once the relationship is established, you’ll send unpaid B2B invoices to your provider. They’ll advance you a portion of the invoice’s value, then wait for payment from your client. You can spend the money on whatever you feel benefits your business most. Once your client pays, the factoring company will send you any remaining funds minus a nominal factoring fee.
How Factoring Can Help You Run Your Business More Effectively
By now, it’s probably easy to see how factoring can help you bridge gaps by accelerating payments or deal with cash flow shortfalls. Let’s take a look at how it influences the bigger picture.
Factoring is a flexible funding solution.
You can factor on-demand in most cases. So, you can choose to factor once and then never again, sign up and wait months to factor your first invoice, factor all your invoices, or just send in invoices occasionally as you need cash flow accelerated.
Think of it as an ace in the hole. When an opportunity or challenge presents itself, you’ve already got it covered.
You’re always moving forward.
Most business funding solutions create debt, along with interest and fees you have to pay off over a period of time after. That creates new challenges for growing businesses because it’s easy to get caught in a debt trap—making interest-only payments and never really making a dent in the balance.
The cash you receive through invoice factoring isn’t a loan, and it’s ultimately paid by your clients when they pay their invoices, so there’s no debt to pay back later. You’re always moving forward, not stuck paying off what happened in the past.
It’s easy to qualify for factoring.
If you’ve ever applied for a bank loan, you know it’s a lengthy process. There’s credit approval, digging into your business and often personal finances, then weeks or months of waiting. Factoring is not a loan, so you’re not forced to jump through the same hoops. You can find out your rate the day you apply and even get paid for an invoice the day you submit it.
You can make more informed decisions about your clients.
Factoring companies put more weight on the credit history of your clients. While you’re still free to work with whomever you wish, your factoring company will provide insights about creditworthiness, so you can take on more work for clients who are financially responsible and mitigate risk by limiting work for those with weaker histories.
You can reduce your administrative burden.
Some factoring companies, like Charter Capital, offer free collections services. Because you don’t have to chase payments anymore, you’ll also eliminate any labor or other expenses associated with the task.
Payments speed up.
Factoring companies have systems in place that encourage faster payment. For example, it’s common for factoring companies to provide clients with ways to pay their invoices online. They’re more likely to have multiple communication methods as well, so clients catch their statements sooner. Little things like these increase the speed of payment overall, so money comes to you quicker.
You can build stronger client relationships.
When you work with a factoring company, you have more freedom to extend terms that are favorable to your clients. They’re balancing cash flow just like you, so having more flexibility in payment can reduce strain on the relationship for you both. This often makes it easier for clients to place larger or more frequent requests, which can create extra revenue for you too.
You have more bargaining power with your vendors.
First and foremost, stabilized cash flow makes it easier to keep up with your vendor payments, so you’ll develop better relationships with them too. In addition to this, you may be able to work out better deals with your vendors. For example, you’ll be in a better position to qualify for bulk discounts. Sometimes vendors will sell stock at a discount when another client cancels their order as well. Because you can tap into cash as you need it, you can jump on these opportunities as they arise.
You may build better credit.
Factoring doesn’t build your credit by itself, but it can help you address all sorts of situations that influence your credit, like making timely payments. Companies often use their factoring cash for growth-related expenses as well. For example, it can help you purchase the supplies necessary to accept a large order, purchase new equipment, or hire more employees. As your revenue grows and stabilizes, banks will look more favorably on you when you want to borrow.
Value-added services can help you streamline processes and cut unnecessary expenses.
Although many factoring companies simply offer factoring services, others go above and beyond to support their clients. At Charter Capital, we offer perks like digital invoice processing, so managing invoices is a breeze. Your client credit reports are free too.
We also offer industry-specific perks. As a freight factoring company, for example, our clients can tap into a free load board and fuel discount cards.
You can focus on your core business and reach your goals.
You have a lot of jobs as a business owner. Chasing payments and constantly rebalancing things to make sure you have the cash to cover payroll and other vital expenses don’t have to be among them. By entrusting your collections and invoice processing to a factoring company, you’re able to focus on your core business functions and build a healthier company overall.
Run Your Business More Effectively with Invoice Factoring by Charter Capital
With decades in the industry, full-service solutions to help your business thrive, and competitive rates that keep more money in your pockets, Charter Capital is America’s leading invoice factoring company. If you’d like to run your business more effectively through factoring, start with a complimentary rate quote from Charter Capital.
- 4 Ways the Transportation Industry is Addressing the Truck Driver Shortage - April 14, 2022
- How Factoring Can Help You Run Your Business More Effectively - March 21, 2022
- 7 Proven Ways to Protect Your Small Business from Inflation - February 22, 2022