Benefits of Factoring

benefits of factoring

There are many benefits to companies that choose to factor. In Addition to avoiding all the paper work associated with obtaining traditional financing, factoring is easy and generally provides instant cash. Below is a list of additional benefits of factoring:

Receive an Influx of Working Capital – The primary benefit of factoring is that it helps your business get the working capital it needs without taking on new debt or dilluting ownership of your company by bringing in new investors. Because today’s economic environment is highly competitive, many businesses are under immense pressure to improve operations and undertake cost cutting measures in order to stay profitable. These problems are compounded for small businesses becasue most small businesses are often times understaffed to begin with. As a result, owners of small businesses frequently spend more time on cash flow and customer credit issues rather than on their primary objectives of growing their business, increasing sales, managing marketing campaigns and improving employee productivity.

Many small businesses experience serious cash flow problems because their cash is tied up in their accounts receivable. For businesses that are growing, the cash flow problems can be even worse because more and more of their capital is not in their bank account, but is on the balance sheet as receivables. Most businesses want to grow and expand, but if appropriate planning is not done, an entire business will feel the squeeze because it is under capitalized. Invoice factoring is a solution to free up your capital and have it available when you need it, just one of the benefits of factoring. Your business will be able to invest resources in areas where it can help you become more profitable, such as payment discounts or taking advantage of promtional prices for inventory or supplies.

Improve Cash Flow Without Borrowing From a Bank – Another benefit fo factoring is that you can eliminate long billing cycles and receive cash for your outstanding invoices generally within 48 hours of less.  Since factoring is not a loan, you take on no new debt and maintain your company’s leverage to take on new debt in the future.

Capitalize on Supplier Discounts – Many suppliers offer discounts if they are paid in a short period of time.  One of the benefits of factoring is that  you accelerate your cash flow, allowing you to pay your suppliers earlier and take advantage of supplier discounts or buy in larger quantities.

Build or Repair Your Credit Rating and Credit Score – Since factoring will give you immediate cash, you can pay your bills on time, or possibly even early, allowing you to build or repair your credit rating. Improving your credit rating and raising your credit score will give you increased borrowing power when you need it – definitely a benefit of factoring.

Spend More Time Building Your Business and Less Time Collecting Money – When you factor your invoices, you have the cash you need to operate your business.  As a result, you can spend more time on the things that matter – sales, quality control, customer service, and production operations.  By factoring, the issue of ‘collecting’ will be off your mind, another benefit of factoring.

Increase Your Company’s Sales By Offering Better Terms to Your Customers – Another of the benefits of factoring is that you can offer your customers better payment terms to entice them to do more business with you. Additionally, you will be in a position to extend credit terms to larger customers without requiring them to pay COD.

Secure Capital By Leveraging Your Assets – Because your ability to factor is based on the credit worthiness of your customers and not you, you can get the cash your business needs by leveraging your outstanding receivables.

These are just a few of the benefits of factoring. Read more about invoice factoring and who it is for in our related articles.