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A Ray of Financial Hope Thanks to the Services of an Invoice Factoring Company

When owning or operating a small business, there are many times where the business may be a bit cash poor. This can create a number of problems and the solution people often come up with is to save money for the rainy day that will inevitably befall virtually every business. This is a nice idea, but if it were so easy, every business would do this.

The Challenges of Creating a Rainy Day Fund

Most businesses, especially small businesses, may not have the financial freedom as of yet to create a rainy day fund. This can create problems when they have a great deal of money tied up in unpaid invoices and are unable to purchase inventory to produce products or services or are unable to pay their employees or other bills. In these instances, an invoice factoring company can be quite helpful.

Alternative Lending

In essence, this is an alternate form of lending that allows a business to take outstanding invoices and borrow against those invoices. A lender known as a factor will either loan money pursuant to a percentage of the outstanding invoices or the factor may purchase the invoices. This allows the business to have the capital they need to continue operations.

Leveraging or Selling Outstanding Invoices

In instances where a factor loans money pursuant to outstanding invoices, it will still be up to the business to collect on the invoice and repay the factor the principal and any fees of interest that have accrued. When factor purchases the invoice, the factor takes full responsibility for the collection of the outstanding invoice. Once the invoice has been paid, the factor will then look to the business to pay the interest and fees.

The bottom line is that factoring is used throughout the business world for businesses big and small. In fact, with this type of lending being so widely used, some businesses add the cost of factoring into the cost of their products and services. That’s why for businesses suffering from a lack of cash flow because of outstanding invoices, your business doesn’t have to wait till the invoices are paid. There are many things businesses can do to be proactive and use their outstanding invoices as a means for procuring operational capital.

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