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How Can Small Businesses Benefit from Invoice Factoring

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How Can Small Businesses Benefit from Invoice Factoring


If you have a small business and are struggling with cashflow issues, you might be wondering how you can keep things afloat. Maybe you have tried to get a bank loan for the business but because you don’t have much of a credit history you have been turned down. Or perhaps you have been late paying your own invoices because of your cashflow problems. This has had a negative impact on your business’s credit score and now traditional lending institutes are not willing to lend you any funds. So what can you do?

How Can Small Businesses Benefit from Invoice Factoring 1The good folk at Thales Financial explain that there is another option for those companies that cannot access funds in the traditional way. can be the perfect solution to many of your problems. This effectively allows you to sell your outstanding invoices to a factoring company before they are due for payment by your customer. In so doing, you will be able to access the money due to you earlier than expected, thus alleviating your cashflow issues.

There is obviously a fee associated with factoring your invoices, and this will vary depending on the factoring company. Nevertheless, most will charge a percentage of the invoice amount. Invoice factoring can be beneficial for small companies, particularly those trying to establish their business and build up a credit score. Below are a few fictional case studies that will explain the benefits of invoice factoring.

Case Study 1: Technology Company

A company specializing in manufacturing and selling electronics was struggling with cashflow issues due to a number of its customers paying their invoices either on the due date or later. This led to the company being unable to pay its own suppliers on time and occasionally not having the funds in place to meet payroll obligations. Staff were unhappy and suppliers were putting pressure on the business to pay their outstanding invoices. The company decided to factor some of its customer invoices, which allowed them to access funds before their invoices were due. They were then able to pay their own suppliers on time and pay their staff, keeping everyone happy.

Case Study 2: Manufacturing Company

A new company producing small custom parts for specific industries was having trouble paying its suppliers because it had given its own customers better credit terms than it was receiving from suppliers. Customer invoices were due around 30 days after supplier invoices were due for payment and the business was forced to pay late. Unable to access a bank loan due to not having a good credit history, the business decided to work with an invoice factoring company instead. Factoring some of its customer invoices allowed the business to access quick cash which they then used to pay their suppliers. This allowed them to develop a good relationship with suppliers and grow their business.


The above case studies show how factoring invoices could help a business to develop and grow. Cashflow issues are common, particularly for new businesses that do not have access to a lot of capital. The ability to get funds from banks and other lending institutes is harder for newly established businesses because of their limited credit history. And when faced with cashflow issues, many find it hard to pay their own suppliers on time. This in turn has a negative impact on their credit score.

With invoice factoring, a business can get paid for their outstanding invoices before the due date. This helps them to pay their own bills on time, pay their staff, and keep the business running smoothly.

Eula Boone

I have written professionally since 2010 and have been an investor since 2015. My finance blog, economydiva.com, is one of the most visited blogs in the world, with more than 3 million readers a month. I love sharing what I know about investing, saving, and managing money and providing practical tips on how to be a smart and savvy money manager.