Most small businesses do not enjoy a significant reserve of working capital. It is not uncommon to make payment arrangements for services rendered that do not complete until quite some time after the completion of the project. When they are involved in B2B (business to business) or B2G (business to government) sales or services, they are typically paid on an invoice with terms of 30, 60 or sometimes up to 90 days.
This means that the small business must pay for the inventory, the labor and the product or service provided and then wait for one to three months for the revenue to reach its account. During that elapsed time, inventory is used, payroll must be paid and the business must be kept operational.
When faced with this temporary cash flow issue, many business owners turn to invoice factoring services. This allows a business to get cash on their accounts receivable quickly and for a reasonable rate. With many factoring services it is possible to have cash the same business day.
There are several important benefits to using invoice factoring services. First and most importantly, because it is not a loan, there is no repayment or interest. Additionally, top factors don’t charge any hidden fees other than their quoted standard rate so budgeting is easy.
Common reasons why businesses use invoice factoring services include:
* Speed of the process
* No complicated loan process and no interest to repay
* Cash on hand to replenish invoice, pay employees or add new staff and equipment
* Ability to take on new contracts without having to wait for payment from work already completed
* Ability to pay off suppliers quickly, often earning additional discounts
Another feature to consider with factoring is the role the factor plays in managing the accounts receivable. Once the factor accepts the accounts you no longer have to worry about collection and management, the factor will complete all that as part of the service.
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