Invoice factoring is whereby a business puts on sale all the invoices that are unpaid for to a factoring company. These invoices are sold at a discount. The exchange for this is immediate cash. It is used in solving problems concerning cash flows, which are usually caused by customers that are slow paying. Rather than waiting for customers to pay, the small business sells its invoices to a factoring company. The factoring company gives 85%-95% of the invoice’s total upfront and then holds a percentage of the value of the invoice in retention up to the time when the customer pays the invoice. After the customer has paid, the company sends the money that is reserved back. The money that is sent is minus the factoring fee. Fundbox is one of the successful factoring companies.
Advantages of factoring invoices for small business
It helps small businesses get money quickly. In most cases, when a business is in a cash crunch, it has typically a minimal time to figure things out and get out of the mess. This is because the business has to keep running as there are employees who are supposed to be paid, rent payment, and the purchase of supplies have to be made too. A small business will, therefore, have to find a way that will enable it to secure funds that will facilitate the activities as soon as possible. Invoice factoring will, therefore, be the best option.
Invoices factoring explained is also advantageous to small businesses, especially those that have not been in existence for a very long time. This is because the companies will not be able to secure loans from banks. The banks find it difficult to give loans to businesses that do not have a lot of assets and income. The banks will also require the market to prove their viability. They require that the business is in operation for a particular amount of time before giving out the loan. Factoring companies, on the other hand, are only interested in the creditworthiness of the business’s customers.
A small business can raise cash without having to acquire debt. Sometimes, a small business might be faced with a situation whereby it is needed to obtain debt. Most businesses will, however, choose to raise the money rather than receiving a debt. Mortgages are risky, and when not paid back, repossession of assets can be done. The business might even go down if the debt is too large.
Invoice factoring explained has done several small businesses to run effectively. They have aided this business to grow without having financial problems. However, these companies differ in several ways. For instance, Fundbox is different from other factoring companies in the way it interacts with the business’ customers. Despite their difference, these companies offer the factoring invoices services to a wide range of business. The service is becoming more common, and many small businesses consider it standard. It is, therefore, the best way for those running small businesses to acquire cash.