Whatever the nature of your business, making sure you get paid on time by your customers is vital. However, smaller operations often don"t have the resources to set up a dedicated credit control department which can ensure that all the invoices you issue are paid. This means that precious effort is often expended by key staff members in chasing up payments, when it could be better used to push the business on - not to mention the havoc that late and unpaid invoices can wreak with cash flow.
Outsource Your Credit Control
This is where the concept of invoice factoring comes in. When you employ the services of an invoice factoring company, you"re in effect outsourcing your credit control operations to them. It will become their responsibility to keep track of which invoices have been paid, and following up on those which haven"t, removing a lot of administration work from the main company office.
Receive Prompt Payment
What"s more, with invoice factoring, you will get paid for each invoice almost as soon as you issue it: the factoring company will pay up to 90% of the value of the invoice within 24 hours, with the remainder (less a fee of course) paid once the client pays.
Which Businesses Will Benefit?
These features make invoice factoring extremely attractive to many types of business, but especially those with the following three circumstances:
- Smaller businesses who don"t have the resources to operate a dedicated credit control department.
- Newer businesses with low cash reserves, for whom late or overlooked payments can be problematic.
- Businesses who need to pay their own expenses quickly or upfront, and so rely on prompt invoice payment for cash flow purposes.
A Solid Example
As an illustration of the powerful benefits of invoice factoring, consider the following real-world business example:
A manufacturing company takes an order for a bulk production run. To be able to fulfil the order, they need to buy in materials. As a smaller company, they do not enjoy particularly generous credit terms with their suppliers, and so need to pay for these materials within a short period - which leaves their cash reserves extremely depleted. Until their customer pays the invoice, there are few resources left to finance any other large order that comes in.
Without invoice factoring, this company would be left in limbo until payment is received - and are risking disaster if payment never actually arrives.
Invoice factoring solves both these problems: partial payment is received quickly, allowing the business to service future orders, while the effort of chasing up late payments is passed on to the factoring provider.
Concentrate on Building Your Business
Most people who enter into business do so to pursue their vision and concentrate on growth, not to chase invoices. Signing up to an invoice factoring service removes an entire layer of time-consuming admin work, greatly improves cash flow, and allows more accurate financial planning so that you can get on with pushing your business to the next level.