How can you know if invoice factoring is appropriate for your business? The article below can help you. If you are especially in a dilemma of whether to work with factors, the guide below can help you answer common questions business owners like you face on a daily basis. The article also contains information you really need to consider before working with any factoring company for that money.
What causes Cash Flow Problems in your Business?
Before you run to sign a contract with any company, determine if your cash flow problems can be minimized with alternative strategies. Again, decide if your cash needs can wait. Ideally, invoice factoring is best suited for companies that need money instantly. The money give n here can most be useful if you need it to pay for operational expenses, rent, suppliers and salaries. But if you can settle these expenses with alternative sources of cash, you probably don’t need a factor.
Your Profit margin versus Costs of Factoring
While it gets praised by a lot of experts, factoring is not the cheapest financing option. If you are a startup with tight financial margins, you may want to hold back the thought of going to a factor. Some of the lenders here may charge up to 30% of the value of your invoices, and this could affect your profits to a great extent. As such, do you due diligence and decide if your profit margins allow you get financed by a factoring company.
How will Customers React?
Basically, most invoice factoring companies have to verify your customers for creditworthiness before financing you. And while a good company will go professional about it and minimize impact, some customers don’t take it positively. Due to this, it is always important to gauge what kind of customers you have and mostly their credit worthiness. Don’t worry though. Good customers will remain customers despite of the few changes that come once you sign a contract with factors.
Can you qualify for the Money you need?
Another important factor you must consider is whether factors can provide the money you need. You can know this by physically contacting a few good companies in your city. You can also research online about what factors look out for before working with you.
However, qualifying for money from invoice factors is faster and easier than with any other lender.