Invoice factoring can benefit businesses that are facing cash flow issues regularly. This financing option works by selling accounts receivables to third parties at discounted rates. The buyer of accounts will assume the rights to get the payment for the invoices. The seller gets between 80% and 85% of the invoice value. With Accord Financial invoice factoring, a business secures cash sooner than when they need to wait for 30-90 days, depending on the credit policy. This business financing offers the following benefits:
Up-front Cash Flow
Businesses that sell invoices get up-front cash flow and expands their working capital. By having sufficient working capital, they can meet operational objectives and seize emerging market opportunities. Securing cash flow allows business owners to focus on growing their business.
With invoice factoring, business owners don’t have to collect debts themselves, letting them and their employees focus on core operation. Also, it has a cost-cutting effect since the factoring company assumes the credit control functions, like collecting checks and maintenance sales ledger, for the transferred invoices. Such functions can take up substantial time and resources for the account seller.
Securing financing from conventional lenders like banks can be challenging for the majority of small businesses. Most mainstream financial institutions choose to deal with established businesses and brands. Fortunately, even small businesses can access invoice factoring services. Often, factoring companies look at the creditworthiness of a business’ customers instead of the net worth of the business.
Reduced Risk of Bad Debts and Late Payments
Late customer payments and bad debt can paralyze a business. While a company can take legal action against its debtors who fail to meet their obligations on time, this can be costly and lengthy. But, businesses can avoid this situation by opting for invoice factoring.
The invoice factoring proceeds are not subject to spending restrictions. This means the business can freely decide where to use the money. Traditional business loans should be spent on the specific needs for which the money was borrowed.
The scope of these benefits can vary by factoring companies. That is why business owners must shop around and compare the offers as well as the terms and conditions of these companies before they enter a deal. Also, it is a great idea to think about contingency measures like credit insurance against the possibility of bad debts, since they are required to refund the invoices factoring company if debtors fail to pay.