Cash is the essential lifeblood of all business organizations operating in the marketplace. As these establishments grow in size, their proprietors need to ensure they have adequate monetary resources. Otherwise, they could face disruptions in their business operations. Traditionally, these businesspersons opt to take short-term loans from banks to tide over any cash crunch their organizations may be experiencing. However, these financial institutions usually impose tough eligibility criteria that makes it difficult to accommodate the needs of such businesspersons. Another viable financing alternative they can choose to avail to meet their working capital requirements is invoice factoring.
Patrick Lanning– Why opt to hire invoice-factoring company?
Finance experts explain that entrepreneurs of small businesses often experience a cash crunch because of slow-paying clients. This means that while these businesspersons are generating revenue from the sales they make, they are not receiving timely payments against the invoices they issue to their customers. However, in the meantime, they pay their suppliers and incur various operating expenses in the process of conducting their business activities. Under invoice factoring, they sell such outstanding accounts receivables to specialized companies known as factors. These corporate enterprises pay them a sum of money equivalent to 90% of the invoice value of such bills after deducting a fee for their services. Such businesses then take necessary steps to recover such slow-paying customers.
These professionals say entrepreneurs can enjoy the following benefits of this form of cash-flow financing:
- Ability to avail a larger line of credit
Patrick Lanning clarifies that the amount of money entrepreneurs can receive under this form of financing depends on the numbers of invoices they have outstanding till date. As they usually sell their products or services to customers with an impeccable creditworthiness record, they can avail a larger line of credit than most conventional banks are willing to offer them.
- Easy to establish and fund
Most companies that offer account receivable factoring services to entrepreneurs just take a couple of weeks to establish business relations with their potential customers. These businesspersons can receive the money they need to operate their organizations soon after these businesses satisfy themselves of creditworthiness of their debtors.
- Expands in proportion to business growth
Most businesses carrying out invoice factoring services can advance as money to their clients to meet their operating needs in proportion to the growth of their organizations. Unlike commercial banks such establishments do not have a bureaucratic set up that hinders the credit line they offer their customers.
- More cost-effective than equity
When business organizations need monetary funds to finance their expansion efforts, their entrepreneurs usually turn to their investors. However, they normally expect a higher rate of return for their money they are willing to give than the values of the invoices these businesspersons issue slow-paying clients. In such a situation, account receivable factoring is a more cost-effective option.
For entrepreneurs who need instant cash funds to finance their operations and expansion efforts, invoice factoring is most cost-effective way to utilize their outstanding accounts receivable. Patrick Lanning says these businesspersons can get the money they need instantly while the factoring companies can recover the amount for such slow-paying customers. This create a win-win situation for everyone.