10 Things you should know about factoring invoices
Factoring invoices helps businesses who need working capital quickly improve their cash flow.
With this financing, your business can leverage your assets by borrowing against your unpaid accounts receivable value. Factoring invoices is an easy way to get immediate access to working capital, cover your expenses, such as payroll and other operating expenses, and grow your business.
Here are 10 things every business owner and CFO should know about factoring invoices:
1. Eliminate your need to invest in credit, collection and accounts receivable staff. An invoice financing company manages and streamlines small businesses invoicing and collections processes. In fact, it provides them with reliable cash flow allowing them to focus on running and growing their business instead of chasing payments and worrying about cash flow.
2. Help ensure you receive payment from customers with credit checks that evaluate your customer's creditworthiness. By evaluating your customer's credit, an invoice financing company can determine the likelihood that your customers will pay you for your products and services. Additionally, the credit report will show how long they have been in business, the average time it takes them to pay, their risk score and their debt summary. This information will provide you with information to evaluate your customers and avoid bad debts.
3. Get up to 90% of invoices with same-day funding. Once approved, many invoice financing companies will advance up to 90% of the factored invoices the day they are submitted. The remaining funds, minus their fee, will be paid to you once they receive payment from your customer. Additionally, invoice factoring approval only takes a few days instead of the long waiting periods for bank funding.
4. Save money by taking advantage of supplier discounts and special buying opportunities for prompt payment. Since factoring your invoices guarantees you will have the funds quickly, you will be able to pay your vendors on time or even early. By knowing you will have the cash flow to make these prompt payments, you can negotiate with your suppliers for discounts and special buying opportunities.
5. Handle seasonal inventory needs. Invoice factoring provides you with the funds when you need them since the value of the outstanding invoice determines funding. This perfectly positions them to assist with financing that is tied to seasonal inventory needs.
6. Funding for growth expansions and new acquisitions. You gain immediate liquidity to make investments earlier by factoring your invoices, effectively growing your business more quickly.
7. Your credit line grows with your business. The financing is based on your outstanding invoices and not an established amount with a bank when you factor invoices. This means that as your business grows its sales, the amount you can finance grows as well.
8. Your personal credit does not affect your ability to obtain a factoring facility. Approval is based on the credit quality of your assets and customers. Since your customers pay the invoice factoring company, their creditworthiness is the most significant factor for you to be approved.
9. Move your businesses toward being approved for a conventional line of credit. Invoice factoring provides the working capital you need now to help move you to a solid history of a strong balance sheet and income statement. For many small and growing businesses that are in transition, this means that it can enable you to be approved for a conventional bank line.
10. You can be approved for invoice factoring even if your business is in turnaround mode, Chapter 11, or reorganized through Assignments for the Benefit of Creditors. Finance companies that provide invoice factoring, such as Franklin Capital, will work with businesses in various situations. We can do this by looking beyond your current and past financial situation and leveraging your assets and customers.
• Sue Duckett is Executive Vice President at Franklin Capital, an Illinois-based finance company. Sue has over 25 years of experience helping small- to medium-sized companies grow by getting them access to the working capital they need. https://www.franklincapitalnetwork.com