Invoice factoring offers a chance for a company or business to raise long-term finance and reduce the risk of recurring bad debts. The business deposits its invoices with the invoice factoring companies and gets an advance, about 90% the total value of the invoices and go on to recover the amount from the debtors.
Invoice factoring can be a convenient option to raise funds by young firms as opposed to business loans or bank overdrafts. Banks will have a problem lending to young companies due to their low asset base or collateral and as such factoring will come in and unlock the company’s cash tied in its stock and invoices. Invoice factoring companies will have no problem to advance capital to start-ups who have normal invoiced revenues circulation.
Invoice factoring has some advantages to new firms as compared to bank loans. Look at the following
Invoice factoring is flexible.
Unlike bank loan that has a fixed amount, factoring gives a business an opportunity to increase its finance alongside the revenues. It is debt that is revolving and has no specific repayment date. When the invoice factoring companies are used, there is higher chance that a fast growing business can supplement its revenues and invest more in its expansion.
The factoring companies can give out funds to firms to finance their emergencies within a short time. Once a customer is issued with an invoice, a copy is sent to the factoring company, and money will be given out within 24 hours. The emergency could be a profitable opportunity in the environment that a business has discovered, and in such circumstance, it would be a long process to go for a bank loan before the opportunity diffuses.
The factoring companies ensure that a business can secure deals and orders as they come, to facilitate growth and expansion. A business with commanding operations and market share will have a competitive edge.
Assist in Payment collection
The pressure that is put on finance departments of fast growth companies can be too much to bear. The staff may put more focus on chasing overdue payments and debts than looking at activities that add value to the business. Factoring companies will take off the pressure from the finance departments of such organizations.
The factors will take over the duty of debt collection and let the finance staff concentrate on growing the business. The business has to offer insurance to the factor in a case of defaulting by some customers. The company stands to benefit more as they direct more energy and time to strategize and formulate policies.