Small and medium sized enterprises seeking finance may want to consider invoice factoring. Invoice factoring is an example of how traditional financial arrangements are entering into new accounting practices toward sustainability.
Here are 10 reasons why Invoice Factoring is the most reliable form of business financing.
# 1. Accounting Principle
Invoice factoring standards allow for more cash flow flexibility in accounting. An accounting principle used in a range of industries, invoice factoring turns outstanding accounts receivables into profit.
# 2. Balance Sheet
Invoice discounting and invoice factoring are both viable options for making sure that balance sheets are on target. Cash flow is a critical mechanism for ensuring that a business is able to resolve accounting expenses normally.
# 3. Liquidity
Like debt trading, invoice discounting factoring produces immediate liquidity for companies seeking alternatives to traditional bank lending. Availability of capital is almost immediate compared to bank application for credit so that expenses (i.e. equipment, payroll, rent, and utilities) can be covered for on short notice.
# 4. Sustainability
It can be especially pressing to manage accounts during delay of an entire billing cycle. Invoice discounting and invoice factoring release cash for expenses that might otherwise force temporary or even final closure or sale of a business. A great secondary source of commercial finance, invoice factoring allow struggling businesses to stay afloat during poor performance periods or delayed payment by customers or other payers.
# 5. Billing Obligation
Advance of funds by an invoice factoring company means that accounts receivables are collateral for lending agreements sustained by the promise to pay at time of collection on those outstanding invoices. When a factoring trader purchases invoices, assuming billing obligation on a retailer or other business accounts receivable, invoice factoring is in effect. This is distinct from invoice discounting which allows businesses to retain control over billing while loosening the strings on cash flow so that other obligations to suppliers and payees can be met.
# 6. Uninterrupted Service
One reason why this is a great option for businesses is that you get the monetary benefit of selling your invoices – immediate working capital – but your billing process does not have to be interrupted and your customers do not have to be aware of the factoring arrangement you have made with the discounting company.
# 7. Rate Variability
Accrued expenses over time can often exceed the cost of service rates. By tendering your invoices for capital lending, you can sustain your own financial obligations in the short term. Similar to traditional commercial finance, invoice discounting factoring varies in terms of percentage rate paid on service. Some traders charge more than others, and in most cases invoice discount factoring services are far higher than standard lending contracts.
# 8. Discretionary Service
Invoice factoring companies provide private service. Businesses looking for the best deal in invoice factoring may find that some research is required. Sourcing reputable, reasonably priced invoice factoring services is advised.
# 9. Industry Specialization
Many invoice factoring companies focus on target sectors. For instance, a business may require additional assistance in recuperation on billing due to lack of in-house support. Searching for an invoice discounting factoring service targeting businesses in that industry will reduce risks in the debt collection process. By narrowing your search to a specialist, the best possible returns are likely.
# 10. Risk Reduction
By speaking to someone involved in invoice discounting factoring or another professional in your sector, time, money and hassle may be eliminated. Third party representatives working as B2B brokers are an alternative to conducting what may become a lengthy search. Intermediary agents reduce confusion via a professional broker community. Many of these intermediaries are now online auction forums for open bidding on invoices. It is that easy. join, post, and compare bids prior to making the decision.
Finding an invoice discounting factoring company through your chamber of commerce, online financial advisory in your sector or through a network of existing business contacts means that recommendation prefaces the relationship. The sheer number of factoring and invoice discounting businesses can be daunting without advice.
For more information on invoice discounting factoring services, contact your local industry affiliation for details about how you can benefit from the sale of outstanding accounts payable.