How Factoring Can Help Get Young Businesses Off The Ground

There are few things as important as strong cash flow for any young business to grow and expand. Without a robust cash management strategy in place, your business will quite possibly flounder even if it manages to get off the ground. Small business factoring can help improve young business’ cash flow by making sure that your capital is not tied up in client invoices.

Starting a business requires numerous things. And, ready cash is the only thing that can help ensure a successful business. Funds acquisition is one of the toughest things for any entrepreneur, especially when going the traditional funding route.

Invoice factoring companies can advance much-needed payments on the basis of uncollected invoices. You don’t have to worry about increasing your debt while enjoying immediate payments with small business factoring.

These are a few ways invoice factoring can help your business grow and mature.

Never Turn Away Business

You never know when opportunity comes knocking at your door, or when you acquire a major client. The worst thing for your business would be to turn away a client because you are not ready to handle their account. You cannot afford to turn away paying opportunities when you are just starting out.

However, not having enough capital to finance operations may seem like a necessary cause. You need the right scale of operations, equipment and staff to tackle any new challenges that a major account or new clients bring.

This is where small business factoring comes in useful. Majority of businesses have their funds tied up in client invoices that are not yet due. There are very few industries that work on an immediate payment system. Most industries have a 30, 60, or 90 day payment cycle. This means you are yet to be paid for the services you have already rendered. In the meantime, you have bills to pay of your own – suppliers, salaries, maintenance, and overheads.

Factoring companies can float you an advance by literally purchasing your eligible client invoices. You don’t need to worry about having enough cash. Banks are usually not as flexible or forthcoming as small business factoring companies. The only thing you need to show while factoring invoices is the creditworthiness of your clients.

Always Have Ready Capital

Everyone knows that to make money, you need to have money first. Young businesses require capital – and a lot of it. However, banks and traditional funding sources are not too keen to fund businesses that are yet to or have recently begun operations. However, without consistent working capital it may not be possible for your business to survive.

In fact, most businesses fail because of a lack of sufficient capital. New business owners rack up considerable personal debt over the first few years or raise money from their friends and family. Either way, there is always someone looking over your shoulder and wanting to be paid back. This can add to the pressure of trying to get a business above ground.

Invoice factoring can come in helpful if you have already started operations and are waiting for your clients to pay you. You can enjoy predictable cash flow and consistent working capital with small business factoring. Unlike loans and other forms of debt, factoring invoices is a form of sale. You don’t accrue debt, but sell your invoices in exchange for immediate cash.

The factoring company will charge a small percentage of your invoices as their fee. Start-ups are all about speed. You need money and you need it right now. This forms the basis of small business factoring. Most factoring companies tend to work fast. They could purchase your invoices at a discount and offer you an advance amount as quickly as 24 – 48 hours. The best part is that you can use the funds for anything you like without any restrictions.

Factoring Partners Provide Support

Owners of small businesses need to wear many hats during the course of a typical day. There are many business owners who would love additional help, but cannot afford it. Accounts receivable is one department that takes up considerable resources in any business. You cannot afford to ignore clients that are late on making payments. Yet, you may not have enough manpower or resources to send constant reminders and generally stay on top of things.

Funding companies can do more than offer cash in exchange for invoices. They can take over the most time-consuming tasks of chasing clients that default. They can collect on your outstanding invoices and stay on top of clients that need gentle reminders to make them pay. They can also check the credit worthiness of a client. These tasks tend to take hours and often require experienced additional staff.

Factoring companies can not only help you with the capital you need, when you need it, but they can also offer necessary back office support at no additional charge. These services along with several other value-added services form part of the factoring fee. Make sure that you speak with your factoring company to understand the kind of services they provide.

Protection from Bad Debt

For a young business, extending credit to a client that doesn’t pay can be harmful at best. However, in certain circumstances it can also have devastating consequences. This makes it important to screen all your customers for their creditworthiness. Factoring companies can take care of this for you at no additional charge. You can be rest assured that the clients you are extending credit to have the necessary means and funds to pay later.

You don’t need to tie up your resources in checking the credit of individual clients. You can continue working on client projects that are not paying immediately. You can get the necessary funds by selling the invoice to a small business factoring company. However, not all factoring companies offer this service. You need to speak with your funding partner upfront whether they will provide client credit checks as part of the factoring agreement.

You can save your business a tremendous amount of effort, aggravation, and time. It is important that you work with a funding partner that understands your young business needs and can help you make sure you get the business off-ground. You may want to confirm whether or not you can outsource your accounts receivables and bad debt protection before signing the factoring agreement.

Invoice Factoring Doesn’t Add to Debt

Most experts recommend small business factoring as the ideal source of funding for young businesses because it doesn’t add to the debt. You are not essentially taking on a bank loan or borrowing cash from somebody. Instead, you are selling your uncollected client invoices. Factoring companies work by purchasing your invoices for a specified fee.

They take their nominal fee as a percentage of the invoice amount factored. You get an advance amount which is usually 70 – 80% of the total invoice amount. You can utilize this amount any way that is most convenient to you. You can use it for acquiring new clients, growing your business operations, clearing past dues, or acquiring new equipment among other things.

There are no restrictions imposed on the payment you receive from the factoring partner. You will be paid the remaining amount whenever the invoice becomes due and the client pays it. End of transaction. In the entire process, there is no debt that you need to keep track of. You don’t even need to repay any amount.

However, you need to be careful in case of recourse invoice factoring. In this type of factoring, the funding partner can hold you liable for the invoice payments if your client defaults or cannot pay. However, this situation is quite rare since most factoring companies screen clients on the basis of their creditworthiness before accepting an invoice. 

Acquire Capital to Grow

Young businesses are in their growing stage and require consistent cash flow. Growth opportunities need to be taken whenever they come along. Without sufficient capital to scale operations, it can be difficult for a business to build a reputation. New companies routinely struggle or shy away from taking large orders because they don’t have the necessary financial stability.

You don’t need to worry about this if you are operational and work with a small business factoring company. Solid cash flow planning can help your business attain new heights. Invoice factoring can provide the necessary funds required to take on large projects. You don’t need to worry about tying your capital in invoices. You can expand your warehouse and bring in additional staffing based on the money you get from your factoring partner.

Invoice factoring essentially helps in smoothing out cash flow issues. This makes it possible for young business owners to relentlessly pursue new growth opportunities. Reputed invoice factoring companies offer valuable services in the form of customized receivables management system as well.

This program can seamlessly integrate with your current accounting functions so that you always have access to necessary data for taking sound decisions. Your factoring funding will increase as you grow so that you can increase sales. This is exactly what you need to ensure your business succeeds.