How Factoring Companies Can Help Your Business Succeed

How Factoring Companies Can Help Your Business Succeed Managing a company’s cash flow can be one of the toughest jobs in a business, especially if you sell products and services to other businesses or government agencies. Most commercial and government clients pay their invoices in about 45 days. In the meantime you still need to pay regular business expenses and salaries. Although established companies may be able to absorb the wait, most new and growing companies can’t. They just don’t have the financial resources to do so. 
One approach is to try and get a quicker payment from your clients. This seldom works. Most companies and government purchasing agents will insist on paying invoices in the usual schedule. And, you run the risk of losing the contract as your client may start questioning your company’s financial ability to meet its obligations. Another strategy is to look for a business loan from your bank. However, banks only provide business loans to companies that have solid financials and a substantial track record of profitable operations. Unfortunately, the kind of business financing that banks offer is outside the reach of most business owners. 
There is an alternative. Let’s say that you had an agreement where your clients would pay you 80% of your invoice upon delivery and the remaining 20% after 45 days. Most companies would not have any cash flow problems if they could secure those payment terms. They would have enough money to cover their businesses expenses and tackle new projects. Unfortunately, most clients won’t offer those terms to you. However, you can get a similar arrangement from a factoring company by financing your invoices.
 This enables you to give your clients 45 days to pay without problems. Factoring financing provides a simple but valuable proposition. You get about 80% of your invoice immediately upon delivery of your services. The remaining 20%, less a small fee, is given to you as soon as your client pays for the invoice. This arrangement provides you with predictable cash flow, enabling you to meet ongoing expenses and putting you in the path to growth. Furthermore, invoice factoring is flexible and can grow with your company.
Financing is tied to your sales, which means that it expands as your company grows. Getting a factoring financing facility is a lot easier and quicker than getting a business loan. It usually takes about a week to set it up. The biggest requirement to qualify is to do business with companies (or government agencies) that pay their invoices on time. And, factoring can be quite affordable too. 
The cost of the service is determined by the size of your financing facility and the credit quality of your clients. Monthly costs can range from 1.5% to 3.5% depending on these criteria. Most companies that have decent profit margins and are challenged by slow paying customers can benefit from factoring invoices. The benefits, such as having a predictable cash flow and being able to meet expenses on time, sure outweigh its cost.