Factoring: Unlock The Money You’ve Already Earned

If you run your own business there’s no reason to wait thirty days or more to get paid – you can now have the money paid within 24 hours.

When you run a small business which depends on your customers making timely payments, you may find certain times of the year to be hard going. Even with your business being a really solid going concern, at times you may not be able to find the necessary cash for running your operations.

This can lead to some vicious cycles: your suppliers are discontent with your payment delays, so you may lose out on some good deals. Your employees get frustrated if they don’t receive their wages on time, and this can lead to a loss in productivity and higher staff turnover rate. So when you do finally get paid and you want to pick up activity again, you may have no one to supply you and no one to get the work done!

You need cash up front. What are the alternatives?

There are a number of ways for you to get more cash into your business:

* Inject personal funds. This is not usually an ideal solution.
* Find a new investor, if you are prepared to give away equity in your business
* Use an overdraft. A solution that usually implies a great deal of time and a lot of conditions your business has to comply with. Overdrafts can be recalled at any time and can be restrictive on your business.
* Apply for a bank loan. In this case you may be spending a lot of time only to find out that you are not eligible. Small businesses aren’t usually banks’ favorites when it comes to loaning them money.

The good news is that you don’t actually have to wait. A good way to avoid these cash flow gaps and not enter the vicious cycle is to set up an agreement with a factoring company.

How to use your own money?

If you’re thinking that the money you’ve honestly earned is all locked up in outstanding or aging invoices, think again. A factoring facility can really work for you and help you to unlock the cash in your business.

Your invoices can be as good as any other assets from a factoring company’s point of view. Through factoring you can capitalise on your largest asset, your sales ledger today as opposed to waiting for payment from your customers.

How do you put an invoice through a factoring company?

The process is simple. When you invoice a customer you also send an electronic copy of that invoice to your factor. Then, within 24 hours or less, the factor advances you up to 90% of the invoice value. The factor usually takes on the responsibility of collecting the money from your customer the day the invoice is due to be paid. After that step is accomplished, the factor pays you the rest of the money, minus a small fee for the service.

For small to medium companies outsourcing the sales ledger management function can be of great benefit because it saves you the burden of managing invoices and undertaking the collections activity. By contracting out that element, you can effectively distance yourself from that function and concentrate on the relationship with your customers and focus on sales.

An additional service offered by such companies is protection against bad debts, which would typically cover up to 90% of the outstanding balance on any customer, where you have a designated protection limit in place.

Why should you use factoring?

Factoring is a complementary solution to be used alongside your standard banking facilities. You should look for the right factoring solution for your business.

Here are a few reasons why factoring should be another source of cash to consider:

* Because you’ll never run out of cash again as a consequence of extending the payment terms to your customers.
* Because the facility will grow in line with your business growth
* Because the facility will allow you to take up opportunities available to you. to propel your business forward
* Because you can grow your business at the right pace without worrying about how long it takes your customers to pay you.
* Because you want the competitive edge against your competition.

Factoring is a financial tool that will allow you to obtain cash advances by capitalising your invoices, while at the same time easing your workload.

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