Businesses that may be starting out have more than office space and utility bills to take care of. Prior to them ever producing a deliverable that may bring income, they should look forward to hiring and paying employees, buying the resources needed for producing the deliverables along with searching for other clients that may enable them to repeat the cycle. However, without any credit history, these businesses would have little to fall back on when communicating with financial institutions with respect to acquiring start-up funds. However, with invoice factoring, you can easily work with customers with long payment terms.
How does invoice factoring help?
Invoice factoring would enable a business to continue with their regular operations. They would help them seek new business opportunities without the need to worry about how they would pay for the service or product that new business need. In factoring, the business would deliver a service or good to a credit-worthy company. It would sell the invoice to a factoring company or the factor. However, the factor would pay the business a specific percentage of the funds that are owed along with sending the invoice to the credit-worthy company. However, when the credit-worthy company would pay the invoice, the factor would deduct the transaction fee from the amount received. The remaining amount would be sent to the respective business.
Two fold benefits of invoice factoring
Invoice factoring provides two-fold benefits.
- Benefits to the factor
The factor would realize that the company doing business with credit-worthy customers could make use of their clients to vouch for them directly. Factors would be aware of the fact that invoice would be taken to be the promise of the client that they would pay for the services or products delivered. However, by choosing companies that would work with credit-worthy and reputed clients, chances are higher that you would get a positive return on investment.
- Benefits to the business
The business would be required to wait for 30, 60 or 90days for an invoice to be paid. However, it would hamper the operations. It would be pertinent that resources for new customers should be replenished prior to receiving funds of old customers. Similar to providing a loan to their customers, clients should wait on funds that have been crippled in using the money their customers owe them. It would enable the business to acquire cash upfront on yet to be paid invoices.