Debtor Factoring is the practice of a company selling its invoices to a third party at a discounted rate in order to avoid the lengthy wait times associated with invoice payments. Its ability to provide SMEs with instant access to capital and speed up their processes has made it particularly popular.
Here are some of the main advantages of using Invoice Factoring For Small Businesses.
IMMEDIATE CASH FLOW
When you sell your outstanding invoices, you will receive the full amount on the spot. This enables you to access the funds immediately and put any cash flow issues behind you. With this method of funding, you can also take advantage of the discounted rates on payment terms, which means you still earn the same amount of profit.
SAVES TIME AND RESOURCES
The biggest advantage of factoring is that it allows you to save time and resources by reducing administrative burdens. With less time spent chasing down payment dates, you can focus on growing your business. When you factor in your invoices, you hand over the administrative burden of collecting payment to the third-party company. They will then deduct the amount owed to them from what they owe you. This means that you don’t need to wait for payment and can still earn the full amount owed to you.
REDUCES PROFITS
When you factor in your invoices, you will earn less than the full amount owed to you. However, you will still receive the agreed amount minus a fee based on the percentage of the invoice amount. This can be a great way to bridge a cash flow gap, particularly if you have bills that need paying off. The fees associated with factoring will depend on the type of Invoice Factoring For Small Businesses you use. For example, there are two main types of factoring – open account and consigned factoring.
ACCELERATES GROWTH
When you factor in your invoices, you will be able to quickly access the capital needed to fund the growth of your business. If you have a business that has a lot of outstanding invoices, it can be a struggle to acquire the necessary capital to fund new projects and advancements. Factoring can help you accelerate the growth of your business by providing you with the capital you need to meet your short-term goals.
HELP YOU MANAGE BAD DEBTS.
When you factor in your invoices, you will come to an understanding of which customers are the most reliable. You can then use this information to decide which customers to factor into their invoices. You can use this information to help you determine which receivables are the most likely to be paid and factor those first. This will allow you to help manage the bad debts.
Summing it up
Invoice Factoring For Small Business is a great way for businesses to obtain quick access to capital and accelerate growth. It is also a great way to help manage bad debts by determining which customers are most likely to pay you back.
