Businesses that are able to get their receivables paid in a timely manner can find themselves in financial and operational troubles. It is common for companies or consumers to pay their invoices 30 or more days past the time of purchase, but this can strap a company for cash to purchase new inventory, pay employees, or meet their utility responsibilities. Instead of taking on debt from a loan, a receivables factoring service can increase cashflow. There are several benefits of these services.
1. No Collateral Required
One of the key benefits of choosing to factor invoices is that the company doesn’t need substantial collateral to guarantee a loan. There are no assurances made or additional responsibilities taken other than the company signing over any unpaid invoices to be factored.
2. More Cash Availability
When a business in need of funds to purchase new equipment or pay its expenses, it can be difficult to get the money needed from a traditional lender. Third parties that allow a company to factor their invoices with them offer as much as 80% of the total invoice cost, giving companies access to more cash. The cash is also exchanged more quickly.
3. Growth Potential
Without payments on outstanding invoices, a company has limited financial resources available for growth. Though money may come in over time, a slow cashflow may mean the company has to delay purchasing new inventory or moving ahead on a new office site. Invoices that are factored turn into immediate cash available for use on whatever is pressing.
4. Collection Assistance
A factoring company assumes the role of collecting the open invoice amount from the client, saving a company time and resources in tracking down past due clients. The company is able to spend its money on other pressing areas of operations, rather than having to hire more people for the accounting department.
5. Lower Debt Ratio
Many companies use debt to help their businesses grow, either through new equipment purchases, expansion opportunities, or increased inventory. Over time, debt that gets out of control can turn into a finanical problem that is more and more difficult to reconcile. Having invoices factored saves a company thousands of dollars in interest fees and doesn’t create a debt portfolio on their finanical report.
A factoring service gives companies a way to access cash without having to extend themselves into more debt. Quicker access to financial resources allows a company to pay its bill on time, purchase needed supplies, or hire seasonal labor to handle an influx of business.