Running a business is never easy, and no matter what industry you’re in, having your cash flow impeded can cause serious issues. There are solutions that can, however, that can help your business keep running smoothly and save you the frustration and slow-downs of chasing after slow-paying customers. The right strategies can give you peace of mind and help you get back to focusing on what you do best – running your business. If you’ve never thought about using factoring services to help your business grow, here are a few financial strategies to consider in the days ahead.
Factoring Services at a Glance
Although the specific processes and details may vary from company to company, an invoice factoring service essentially helps businesses run at their best by helping them keep their cash flow where it best works for them. Other terms for this process include receivables factoring or invoice financing.
At it’s core, the basics of factoring are that the factoring company buys the invoice or invoices from the business, buys or gives a cash advance to the business for the invoice amount(s), and is then responsible for collecting the payment for the invoices from the customer.
There are a variety of different ways that businesses can utilize factoring services, so there are custom solutions for all sizes and types of businesses.
Use Recourse Factoring for Generally Lower Fees
One common option with factoring services is recourse factoring. Using this type of financial strategy means that the factoring service company will purchase the or advance money for the invoices; typically your business receives a portion up front. Once the invoice amounts are collected, the factoring service will provide the rest of the amount.
Non-Recourse Factoring Can Give Businesses Peace of Mind
With non-recourse factoring, the fees may be higher and advances may be lower because the factoring company takes on more risk. In this arrangement, the factoring company will take on the risk on non-paying clients, and the business is not ultimately responsible. This can provide peace of mind and additional protection for your business.
Standard Factoring Provides Consistent Cashflow
Along with the recourse and non-recourse options, there are a variety of ways to use factoring services for your business. Standard factoring is a strategy in which a business works with the factoring service for all of their invoices.
Single or Spot Factoring Helps Solve Specific Problems
In some situations, businesses may not need full factoring for all of their invoices. Using a factoring service for single invoices (which is also known as spot factoring), allows plenty of flexibility for your business and can help provide cashflow for things like materials for ongoing or larger projects. This could also allow a business to take on more projects.
Factor Invoices With Good Credit to Get Potentially Lower Rates
Factoring rates can vary depending on a wide range of aspects. However, those with a stronger credit history may receive more advantageous rates. This can help in the long term as a financial strategy because lower factoring rates can ultimately provide more funds for your to business to grow.
Use Factoring to Build Capital and Increase Growth
Freeing up a portion of funds to allow everyday business to flow well is a benefit of using factoring services. However, this can be a smart financial strategy for businesses that doesn’t incur debt. As banks close credit cards and the economy takes various shifts, factoring can be a smart alternative to borrowing.
Use Funds From Factoring for Multiple Business Needs
Another smart financial strategy is to use factoring for multiple business needs. Whereas a property loan would only allow the funds to be used for that specific purpose, businesses aren’t limited in terms of where they used the funds when they use factoring. That means that you can use the money anywhere that’s most needed for your business.
Factoring Services Are Smart Solutions for Savvy Businesses
With all the different financial strategies surrounding factoring, it can be a smart solution for businesses in a variety of industries. Because you can tailor how you use the service to fit your company, the growth opportunities are limitless.
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