How Can Small Businesses Benefit from Invoice Factoring
If a small business is struggling with cash flow issues, you might wonder how to keep things afloat. Maybe you have tried to get a bank loan for the company, but you have been turned down because you don’t have much of a credit history, Or perhaps you have been late paying your invoices because of your cashflow problems. This has hurt your business’s credit score, and traditional lending institutes are unwilling to lend you any funds. So what can you do?
The good folk at Thales Financial explain that there is another option for those companies that cannot traditionally access funds. 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 can access the money due to you earlier than expected, thus alleviating your cashflow issues. It can be the perfect solution to many of your problems.
He is associated with factoring your invoices, which will vary depending on the factoring company. Nevertheless, most will charge a percentage of the invoice amount. Invoice factoring can benefit small companies, particularly those trying to establish their business and build 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 struggled with cashflow issues due to several customers paying their invoices on the due date or later. This led to the company being unable to pay its suppliers on time and occasionally not having the funds to meet payroll obligations. Staff was unhappy, and suppliers pressured the business to pay their outstanding invoices. The company decided to factor in some of its customer invoices, which allowed them to access funds before their invoices were due. They were then able to pay their 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 customers better credit terms than it received from suppliers. Customer invoices were due around 30 days after supplier invoices were unpaid for payment, and the business was forced to pay late. Unable to access a bank loan due to poor credit history, the firm decided to work with an invoice factoring company instead. Factoring some of its customer invoices allowed the industry to access quick cash, which it used to pay its suppliers. This allowed them to develop a good relationship with suppliers and grow their business.
The above case studies show how factoring in invoices could help a business to develop and grow. Cashflow issues are common, particularly for new companies that do not have access to a lot of capital. Because of their limited credit history, getting funds from banks and other lending institutes is harder for newly established companies. And when faced with cashflow issues, many find it hard to pay their suppliers on time. This, in turn, hurts their credit score.