Alleviate Cash Flow Problems with Factoring
For companies which deal in invoices instead of payment upfront, cash flow can be an issue. This is especially true if you deal in a few very large invoices at a time. Factoring your accounts receivable can be a good way to help manage your cash flow without having to wait for your clients to pay on the invoice. Before you get started with finding a factor, it is a good idea to determine whether you are going to be using one-time or ongoing invoice financing and whether the money is for existing expenses or new endeavors, because that may change the type of funding and factor you choose.
One-time or Ongoing?
Factoring can be used as a one-time cash flow help or as an ongoing billing method. This can have different impacts for your company as the fees are likely to add up the more you use the service. For instance, using an advance from a factor for one invoice will probably not incur any processing fees whereas selling a hundred invoices at once may cost you. When you factor your invoices, you are selling them for someone else to collect on, this may mean that the creditworthiness of your clients is taken into consideration and may influence them as well as your ability to sell their invoice. The more you sell, the more customers the factor have to check out. You may be able to set up ongoing payments for less with the right factor, but it will take some research and comparisons.
Existing Expenses or New Endeavors?
What you use the advance for can be as important as where you get it. Some costs are more sustainable to use with this type of funding than others. For instance, if you are using your invoice financing funds to pay for your ongoing expenses, then you are more likely to need to use it on an ongoing basis. If, however, you are using the advance to purchase new equipment or product for an expansion, then the fees associated with invoice financing may be more reasonable than those of a traditional bank loan.
Factoring can be a big help to your cash flow problems and even take the stress of collecting invoices off your shoulder for a time. You can find a variety of factors online and compare services and terms before you get started. You should determine how long you are going to use a factor and for which expenses before you sign any paperwork to make sure that you are getting the best financing method for your needs.