Updated: Sep 14
For many startups and companies, supply costs, income fluctuations, and volatile market conditions often cause inconsistent cash flow. Businesses suffer poor cash flow when their working capital is tight. That means, whether your business is related to transportation, manufacturing, professional services, or distribution, it may face financial instability if there is no proper cash-flow management. So, how can businesses deal with this problem? Or what financial vehicle can entrepreneurs use to overcome the problem? Invoice factoring is one of the most suitable alternatives that help business owners maintain their cash flow. With this simple yet effective strategy, small businesses can manage capital financing, without having to wait for too long. Here we have enumerated five compelling reasons why you should consider invoice factoring for your business.
1. When Your Business has a Constant Cash-flow Problem
It is not unusual to see small businesses and startups facing constant cash-flow problems. Businesses often run into difficult situations where they are left with little cash after all the expenses. This may happen with you no matter what business you’re into or how healthy your startup is. However, if you’re somehow plagued by incessant cash-flow issues, it is crucial you start focusing on cash-flow management. There are many ways you can try to manage inconsistent cash-flow if you want to improve the productivity and profitability of your business.
Invoice factoring enables you to leverage your invoices from services rendered or products delivered as a source of collateral for the Factor to immediately convert unpaid invoices to cash. It occurs in a simple process. You bundle up your open invoices and send to the Factor. Typically, within 24/48 hours, the factor wires roughly 80-90% of the gross value of the invoices into your bank account. Once your clients pay those invoices, your loan is automatically repaid. This allows your business to not only gain stability but also manage cash flow while covering the day-to-day operating costs. With invoice factoring, many businesses can take advantage of new opportunities and supplier discounts.
2. When You Want to Unlock Cash Immediately
The reason might not seem very significant, but the need for immediate cash in business is extremely important. Businesses often need to have fast access to big amounts of capital to fulfill purchase orders and onboard new customers. Using invoice factoring is one way businesses can unlock cash with the help of their invoices. It makes a simple strategy to secure the finances any business needs.
3. When You Want to Manage Finances for Seasonal Businesses
As mentioned earlier, managing sufficient cash flow is a constant challenge for small businesses. These problems can become even more troublesome if you run a seasonal business. Invoicing factoring, in this regard, makes a valuable financing tool when you need to smooth out the cash flow of your business during slow sales periods. Invoice factoring serves as an asset-based lending program, allowing businesses to harness the money in their receivables to ensure the provision of sufficient cash flow when sales and manufacturing operations are comparatively slow. Entrepreneurs use these finances for managing their ongoing operating expenses that include utilities, taxes, salaries, and insurances. Not only this, the funds are used to make purchases for the next sales cycle inventory, and ramp up pre-season marketing campaigns to increase revenues.
4. When You Don’t Get Investments from Banks
It is one of the important reasons why so many small businesses are choosing invoice factoring to deal with their cash-flow problems. Refusal from big banks when you need funds to manage operating expenses can lead your business to a potentially dangerous situation. Invoice factoring companies, on the other hand, partner with small businesses and create a custom financing solution with a reasonable structure that big banks and commercial sources fail to provide.
Invoice factoring companies are not regulated like banks. That is why they help businesses make flexible deals, secure finance structure, take risks, and make informed funding decisions. These companies are collateral-focused. What it means is that unlike traditional loans, businesses do not need to wait for a long time for their cash to get approved, nor do they have to show their credit history to prove their creditability. Invoice factoring is based on the money that your customers owe you i.e. it is your money at the end of the day. What invoice factoring companies care about is that your business provides great services to the customers.
5. When You Want to Avoid a Typical Lender
There is no denying that invoice factoring is much more than just a typical loan from a lender. For many businesses, invoice factoring is like a business partner. The invoice factoring companies offer financial support and they also help businesses sustain in competitive marketing. In addition to providing business finances, invoice factoring companies offer services to assist businesses get their factored invoices paid within a specific time.
Some invoice factoring companies give small business access to an online reporting system. The service generally allows business owners to track information on the received funds, and check day-to-day transactions. Businesses can access their credit reports - which an invoicing company pulls on the customers - adjust credits, and monitor payments.
The payment transitions are smooth as invoice factoring companies ensure to handle them with discretion. The reliability and support of invoice factoring companies are the main reasons businesses consider them as the best financing solutions. Besides this, invoice factoring helps small businesses cover their short-term costs while enabling them to capture the long-term growth opportunities.
In a nutshell, healthy cash-flow allows businesses to manage finances efficiently. However, if natural ebb and flow of income in any business makes one month a financial breeze, it can alter the situation in the next month. Because big banks have tightened the belt, many businesses are reaping the benefits of invoice factoring to maintain consistent cash flow, generate profits and stabilize business. If Porter Capital can help make your company's situation better please reach out by visiting our invoice factoring apply page here.