Businesses usually resort to invoice factoring in order to attain funds for growth or survival. Invoice factoring or discounting would involve a business selling its invoices to a third party commonly referred to as the factor. Organizations aspiring rapid growth, with negative tangible net growth, operating at very high losses or undergoing bankruptcy turn to invoice factoring. This is the best funding strategy for businesses that rely on regular and consistent cash flow.
Invoice factoring is very popular today because of its accessibility. Factoring companies are highly specialized in collateral evaluation. They are therefore comfortable with reaching out to a wider spectrum of businesses to enable them attain the traditional credit.
Factoring companies have plenty of resources that are at the disposal of the business owners. They also have skilled and experienced personnel to assist the business in any way possible. They have the resources required to evaluate the creditworthiness of a business. Normally subscribing to these services usually costs thousands of dollars annually. Even on subscribing, the authenticity of the information given is not a guarantee. With their skilled personnel, factoring companies are capable of carrying out efficient evaluation measures on the credit subscription reports and come up with informed decisions.
Delegating important business activities to the experts from the factoring companies would positively impact on the general running of the business. The experts are able to handle the business’ operations and skillfully interact with its customers. In the long run, the organization increases it profits and improves its reputation.
Cash flow is always smooth and efficient at the hands of experts. The companies take up most of the tasking activities that an organization is supposed to engage in. This gives room for growth and maximization of profits.
Acquiring cash from banks is usually a long and tiresome process. Factoring companies, unlike banks are not lenders and therefore capable of coming up with very fast decisions. They evaluate their clients’ invoices and decide whether they would advance the cash for the invoices. Acquiring money from factoring companies is not as hard as getting a loan from a bank. It is even much more difficult for a new company to get a loan from a bank. Factoring companies are more considerate and give many armature companies an opportunity in the tough credit market.
Factoring companies are experts in credit management. Just like the business, they are interested in getting the invoices paid by the customers. With their resources they are able to confirm that the customers are in the receipts of the invoice, confirm the agreed upon payments between the business and its customers, and ensure the payments are directed to the lock-box.
There are situations that do not favor factoring as well. Invoice factoring is not suitable for organizations that operate in a low margin. Business owners who are control freaks and cannot bear the thought of a third party interacting with their customers should also avoid incorporating invoice factoring.
Invoice factoring is a good way to raise the operational costs for an organization because capital is obtained without incurring debts. This strategy also does not diminish the level of a company; the business owner will retain his ownership position after factoring. Many businesses turn to invoice factoring as the last resort when it should be a daily strategy in the business.