All businesses experience occasional issues with cash flow, but it can be especially problematic for start-up and small companies. One reason for this is that companies typically give customers 30 to 90 days to pay outstanding invoices in order to attract their business in the first place. While the company might technically have earnings on paper, the money isn’t there when needed. Invoice factoring is one possible solution to this common problem.
What Is Invoice Factoring?
When you sell an unpaid invoice to a third party, that organization forwards you the amount of the invoice less its processing fee and any interest charges. Your customer then makes payment to that company instead of yours. For this reason, it’s important to select your best customers when choosing which invoices to sell. This increases the likelihood the factoring company will choose to work with you.
Benefits of Selling Unpaid Invoices
Unlike bank loans that can be difficult to qualify for and may take several weeks to receive funds upon approval, factoring is a fast process that provides you with cash in just a few days. You can use the cash for any purpose you like while you wait for payments to come in from your customers. It frees you up to spend less time on accounts receivable functions and more time on growing your business.
Another benefit of factoring is that you can receive an approval even if your start-up or small business has little credit or poor credit. This is because the approval decision rests on the creditworthiness of your customer instead. If your customer becomes delinquent in paying the invoice to the factoring company, it will take over collection efforts.
Are you ready to learn more about how factoring can help your business get through a period of low cash flow? Schedule an appointment with Sudden Rivers Capital today.