Should You Be Working With An Invoice Factoring Company?

You run a successful small business. While your competitors are holding “Going Out of Business” sales, you’re still operating, even in the worst economic climate in decades. But all is not perfect. You’re struggling with your monthly cash flow. You never seem to have the money you need when all your bills come due. There is a way out of this situation, though. It just requires working with an invoice factoring company.

Factoring invoices is a time-tested method of grabbing quick cash. It’s also rather simple. Business owners sell their outstanding invoices to an invoice factoring company. That company then handles the tricky matter of collecting the money owed on the outstanding invoices. Once they do, they keep the money, making a profit on each invoice.

This system works for everyone because of one simple factor: When you sell your outstanding invoice, you do it at a discount. In other words, you sell it for less than what your client or customer owes you. Note that this method is a bit different than invoice discounting. With factoring you are selling the invoice and with discounting you are just using the receivables as collateral. Yes, factoring means that you end up with less money in your pockets than if you would have collected the money on your own. But invoice factoring does provide you with much-needed cash at a far quicker rate. It also spares you the headaches of collecting the money owed to you.

Think about the stress you’d relieve if you had one more source of quick cash for your business. Paying the rent each month would be less of a burden. Keeping the lights on wouldn’t keep you awake at night. And paying your employees would be a far easier matter.

You can experience this peace of mind with invoice factoring. You just have to decide one thing: Is the discounted amount of cash you’d receive from selling your outstanding invoices worth the layers of stress you’ll be peeling away?

Remember, the nation is in the middle of a particularly unforgiving economy. Just look down the main business strip in your city or town. You’ll see a lot of empty storefronts. You need every tool available to you to avoid this same fate. Working with an invoice factoring company might be the one strategy that helps you work through these tough economic times.

When deciding whether selling your invoices is worth it you will want to look at the cost of other available options. For example, is your company in a position to head down to the bank and pick up a loan? If so, then that may be cheaper than selling your accounts receivable.

The fee charged by a factoring company varies according to the credibility of your customers. The fee is usually around 2-4% per invoice per month. That means that you are looking at about 24% per annum. Something definitely worth considering as most loans are at a lot lower rate.

At this point, you may be wondering why anyone would want to sell their invoices if the rate is that high. It is important to remember that the factor is providing more than instant cash; it is also providing a collection service.

In addition, in many cases when businesses are unable to get loans they are able to sell their receivables. This is because factoring companies essentially have an asset backed loan. The asset being the amount due from your customer. This may allow the factor to have legal recourse against the customer if they don't pay.

In order to determine if factoring is a good idea for your company, you also need to take a hard look at your industry. In the health care industry it takes a very long time for medical centers to get receivables paid off. This has led many in the industry to consider medical account receivable factoring. However, in other industries this type of transaction simply wouldn't make sense.

Ultimately you'll need to look at competing ways of raising cash when determining whether or not you should work with an invoice factoring company.