If you have a small to mid-size business, it is highly likely that you suffer from business cash flow concerns. A steady cash flow not only keeps your business solvent, but it also enables you to grow your business because you lack working capital. The most common factor in lack of working capital is offering payment terms to your customers.
One of the most frequent negotiating terms for new customers is the amount of time they have to pay you for your products or services. A small business owner will accept the payback terms of 30, 45, or even 60 days to get the business. However, you are expected to deliver your products or services immediately and wait for your payment for up to 60 days.
It doesn’t take long to have a great amount of your money tied up in unpaid invoices if you offer payment terms to your customers. It is very possible to have more money in accounts receivables than in cash in the bank. Eventually you will hit a wall. You won’t be able to offer any more product or services until your unpaid invoices are paid. You won’t be able to make payroll or pay your suppliers.
Your unpaid invoices can be an asset. How? They can be turned into needed funds through invoice factoring, also known as invoice financing and invoice discounting. What is invoice factoring?
For example, if one of you customers is a very reputable company such as BT and they owe you £10,000 in 45 days, are you pretty sure they’ll pay? That invoice is almost as good as having the £10,000 in your hands now. And if you have unpaid invoices from several reputable companies, the invoice factoring company will be glad to take those invoices off your hands in exchange for instant cash now.
You will not be in debt to the invoice factoring company because they do not loan money to you. Instead, they actually buy your invoices at a small discount. It is easy to qualify because they do not look at your business credit in order to buy your invoices. They look at the credit of the companies who owe you.
Now it is the factoring company who waits to be paid rather than you the small business owner. This plan works well for small businesses that have turned away new business because of a high percentage of unpaid invoices that hinders cash flow.
Factoring and invoice finance services are commonly used within the recruitment industry as well as many other industries that send out large numbers of invoices very frequently. If your business is suffering from cash flow problems and these are preventing you from operating efficiently or expanding then a factoring service may well help to relieve these problems. An invoice financier will be able to tell you the most suitable service and whether or not your business is suitable for this type of service, there are many factoring companies online that can provide these services.