Many business leaders and CFOs, both at well-established enterprises or helping burgeoning businesses get a foothold in the market, have been using invoice factoring as a strategic financial tool and part of their overall financial plan for years. However, those less familiar with invoice factoring may consider it more of a last ditch effort to access cash.
It’s far from that.
Instead, invoice factoring should be seen as a go-to financial solution offering key advantages for leaders that don’t want to rely solely on traditional funding options.
Just as a mechanic has multiple tools to fix a car, you also need more than one strategic financial tool to fund a business, and maintain a positive cash flow. While bank loans, lines of credit, VC funding and other options have their place, here are the ways invoice factoring can provide regular support.
Ongoing improved cash flow
Invoice factoring makes paying bills and meeting payroll far easier and less stressful because money is received up to three months earlier than waiting for clients to settle their invoices. You will not have to wait for the 30, 60 or 90-day payment terms set out in your invoice payment terms.
Also read: The advantages of invoice factoring vs. business loan
Companies are well-placed to negotiate discounts
Being able to pay suppliers up-front can lead to considerable discounts, which can have a big impact on overall expenses, balance sheets and profits.
The ability to fund growth and boost sales
Receiving income so much faster frees up the funds needed to help companies grow. This has a positive snowball effect:
- Inventory can be increased so that companies can easily and quickly meet larger orders (which can help improve cash flow).
- You can recruit more staff to increase sales and delivery capability.
- Funds can also be used to pay for expansion costs.
Grow the customer base by offering generous payment options
Longer credit terms can be offered confidently to new customers, in the knowledge that it will have little impact on cash flow.
Invoice factoring provides flexible options
Most factoring companies don’t require long-term contracts or minimum/maximum transaction amounts. Invoice factoring is meant to grow along with the business, so companies potentially have access to constantly increasing funding. Also, the up-front payment can be spent in any way the company chooses, without restrictions.
Save money on accounts receivable
A solid, trusted relationship with an invoice factoring partner has extended benefits. Your factoring partner will also collect payment from the end customers, saving you administrative hassles when it comes to collections and invoice processing. It could even mean some companies no longer need a dedicated receivables department.
Be well-placed for future growth loans
Given that invoice factoring is not a loan, there are no high-interest rates to pay or loans on the balance sheet. This could improve a company’s chances of securing a larger expansion loan at some point down the line.
Ultimately, invoice factoring can help companies to grow and make far more money than the invoice factoring fees involved. You’ll be able to work with your invoice factoring partner to determine if this solution makes sense for your business.
To find out more about the advantages of invoice factoring and how we work with our partners and clients at Blacksail Capital Partners, please contact us today.