Why is Invoice Factoring Good for Struggling Businesses?

Factoring is where you sell unpaid invoices to a financial company. They then give you up to 85% of the funds there and then, claiming it back through your clients, for a small fee. There are various benefits of invoice finance, especially for small to medium sized businesses. In this article we’re going to look at just a handful of these benefits.


Quick Access & Improved Cash Flow

This type of finance is beneficial to smaller businesses as it gives you fast finance for your business. Quick access to funds means that you don’t have to worry about looming debts. The initial setup of the factoring service can take up to 10 working days. However, once this setup is complete, you can gain funds within 24 hours in most cases.

invoice finance

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Due to the nature of a factoring agreement, it isn’t technically a loan. This means that it doesn’t add to liabilities on your overall balance sheets. No monthly loan payments and no liabilities means that you can better control your company’s cash flow.


Flexible Finance & Modest Fees

The finance you can get is extremely flexible; with no long term contracts and no minimum or maximum funding in most cases. It means that, should you feel like stopping, you can cancel your agreement at any time. The agreement only lasts as long as you want it to. It also means that as your invoices grow, so will the funding.

Additionally the agreements made are designed to have low and modest fees attached. Unlike a bank, a factoring company can charge you as little as 1.5% of the invoice amount; whilst still offering up to 85% of the funding. This makes the service beneficial to both you and the finance company – a win win situation.


More Control & Less Stress

Using a factoring company gives you far more control too. You don’t have anyone telling you how to spend your money. And there’s no hidden blueprint saying what to do with it. You’re the one in control the entire time and you decide what invoices you get funded. You don’t have to fund them all of you don’t want to.

stress free business

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On top of being in control there is also a lot less stress to go around. Usually you would have to be the one chasing payments and trying to get invoices paid. Using a factoring company means that they take over the debt collection side of things too. So you get your money and they deal with the rest. It gives you more time to do what you do best.


Poor Credit & Increasing Bottom Line

It’s a common misconception that you need to have amazing credit to apply for a factoring agreement. But this simply isn’t true. Invoice finance is based upon your client’s ability to pay, not yours. This means that when you’re struggling financially, factoring is still very much an option for you and your business.

Although you can get funding for up to 85% of the invoice, that doesn’t mean you cannot increase the bottom line using the factoring service. For example, you can save/make money far in excess of the initial factoring amount. You can take advantage of early payment discounts, negotiating bulk discounts from suppliers and increase inventory for large orders. Remember to take advantage of these when you can.


Extending Terms & Receivable Management

You can extend terms to potential and existing customers, as well as increase sales, by offering credit terms to new or large customers (all without hurting your cash flow). In many cases the factoring company will also help you underwrite their ability to pay. Avoiding the extension of terms to higher risk candidates.

invoice factoring

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Lastly you can get professional management from a factoring company, as they deal with all of the paperwork, processing and collection of payments. Having the invoices and debts managed by someone else frees you up to improve and grow your business.

So there we have it, just a few reasons why factoring your invoices with a finance company can greatly improve your small and growing business. If you would like to talk to us about how we can help you with your invoices please visit our factoring page or speak to us directly on 0845 468 6423 or email info@ccc-finance.com.

Feature image creditElizabeth Crego via 123RF

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