The benefits of invoice factoring run deep, but you shouldn’t go down this path until you’re 100 percent sure that it’s right for your business. By taking this approach, you know you’re making a financial decision that will benefit your organization in both the short and long term.
Invoice factoring benefits vary from company to company and industry to industry, but there are some that generally remain consistent. Here are five key benefits:
1. Improved Cashflow Now
You have the opportunity as a business to send invoices and wait for payments to arrive. And while that may be the best option at times, it doesn’t do you any good from a cashflow perspective. In fact, you could find yourself waiting for months on end — often well past the due date — for funds to arrive.
With invoice factoring, you give up a small portion of receivables for access to immediate cash. This is one of the best — if not the best — ways to improve cashflow. You can then use available funds for everything from paying suppliers to investing back into your organization.
Also, as your business grows, so does the ability for you to generate more cashflow via invoice factoring.
2. An Alternative to Borrowing Money
When you need access to money, borrowing from a bank or credit union is often the first thing that comes to mind. However, before you go down this path, you should familiarize yourself with the pros and cons.
Invoice factoring isn’t the same as borrowing money. Instead, you’re securing funds in advance in exchange for a portion of your accounts receivable.
Not only does this give you instant access to funds, but you also avoid interest charges. Furthermore, there’s no lengthy application process (with the chance of a denial).
3. No Additional Collateral Required
With a secured business loan, you’re required to provide the bank with collateral. This is property — such as real estate, vehicles, inventory, or equipment — that the bank can repossess if you default on your loan. While you have no intention of this happening, you never know what could go wrong in the future.
With invoice factoring, you’re not borrowing money. And for that reason, you don’t have to concern yourself with traditional collateral. This makes it less stressful and more time-efficient to move through the setup process.
4. Greater Probability of Approval
Any time you apply for a loan — even if you have a good or excellent credit score — you run the risk of being denied. If that happens, you’ll look back on the process and realize just how much time and resources you wasted.
Fortunately, with invoice factoring, this doesn’t come into play. You don’t need excellent credit, a long-standing financing history, and/or collateral. Instead, your factoring company is more interested in the value of your invoices and the payment history of the applicable customers. This gives them a clear understanding of the risk on their end.
5. Save Time and Money
How much time does your accounts receivable team spend chasing down payments? Do you employ individuals who do nothing more than this? Is expansion in the cards?
There are times when an in-house accounts receivables department is necessary. But even so, that doesn’t mean you have no other options. When you pass the process off to an invoice factoring company, you spend less time and money in-house collecting payments.
Additionally, you’re positioned to reduce overhead costs related to office space, equipment, and supplies.
How to Decide if Invoice Factoring Makes Sense
Now that you understand the benefits of invoice factoring, it’s time to answer the million-dollar question: does it make sense for your business right now?
There’s no right or wrong way to decide if invoice factoring is worth your consideration, but here are some basic points of guidance that any company can use to inch closer to answering this question.
1. Review your current process
This is where it all starts. Before you give invoice factoring the green light, review your current process. Focus on the good, the bad, and any potential changes you could make for the better.
Your goal is to determine if you’re in a position right now to take advantage of the invoice factoring benefits detailed above.
2. Consider any potential drawbacks
The benefits of invoice factoring far outweigh any potential drawbacks, but it’s always in your best interest to consider any challenge that could stand in your way.
For example, you may have questions about which invoice factoring service is best for your company. Or maybe you don’t fully understand the costs associated with invoice factoring.
Once you address potential drawbacks head-on, you’ll know what to do next. You can proceed or hold off as you collect more information. What matters most is that you make the right decision for your company.
3. Consult with an invoice factoring company
You can do a lot of research on your own, but there’s no replacement for consulting with an experienced and reputable invoice factoring company. Do the following:
- Explain your situation and what you want to accomplish with invoice factoring
- Ask questions
- Learn more about fees
If you decide to proceed with invoice factoring, you’ll need to contact a professional provider anyway. So, you might as well do so as you take steps in deciding if this makes sense for your business.
These may not be the only benefits of invoice factoring, but there’s a good chance you can relate to them. At Revolution Capital, we’ve helped thousands of businesses across North America grow through transparent and flexible invoice factoring services. Our same-day financing options (up to 98% of your invoice) enable you to do the same without having to worry about cashflow hiccups holding back your business operations.
If you’re ready to learn more or to get started, contact Revolution Capital online or via phone at 1-855-879-1511. We’re here to answer your questions, provide guidance, and help improve your company’s finances.