Invoice Factoring For Small Businesses – An excellent Financing Option
As a small-business owner, you can turn your unpaid customer invoices into fast cash with invoice factoring and its closely related counterpart, invoice financing. These options are best for business owners whose customers don’t pay for goods or services right away but who need cash now to run their business.
Choosing an invoice factoring company for you can seem like a daunting prospect for many small business owners. To make this easier we have created the ultimate guide covering everything from how small business factoring works to the costs involved. We have also listed the UK’s top invoice factoring companies.
Factoring Companies for Small Businesses
Once you have decided that invoice factoring is the best option for your business you need to start considering which invoice factoring company will suit your needs most appropriately.
For some small business factoring companies, you will need to have been in business for a certain amount of time and have a minimum turnover. You can self-select some companies based on these factors alone.
What is Invoice Factoring for Small Business?
Invoice factoring is a way for small businesses to raise capital and improve cash flow. You sell your unpaid invoices to an invoice factoring company in return for a cash advance.
The cash advance usually equates to around 80% of the invoice value which you receive within 24-48 hours of factoring your invoice. The remaining value of your invoice is paid back to you minus the factoring fees once it has been collected.
Factoring small business options depend on a number of factors, and brings a range of advantages and disadvantages for your business. Weighing these up in the context of what options are available to you is important when choosing a factoring company.
Is Invoice Factoring Right for Small Business?
Invoice factoring isn’t right for every small business, but for others it can be a lifeline and a way of maximising opportunity and growth.
If you need a flexible and fast source of cash and do not want the hassle of the administration work associated with the processing and collecting of unpaid invoices, invoice factoring is an ideal solution.
If you have reliable customers that pay their invoices by the end of the invoice period – let’s say 60 days – but your business struggles to keep up with other client requests or orders because of lack the cash flow, then invoice factoring can help you to grow, solve cash flow issues and take advantage of new business opportunities.
However, if you have unreliable clients with poor credit history who consistently fail to pay the invoice amount by the due date then invoice factoring may not be the best option for you.
Advantages of Invoice Factoring in Small Business
- Increase your cash flow quickly, without waiting for customers to pay
- Reduce administrative pressures on your business due to processing invoices.
- Help you grow by taking advantage of opportunities as they come, such as a new client or project
- Enable you to make urgent purchases.
- Reduce the time involved in the cash flow cycle, which can be limiting to small businesses who are unable to wait long periods for payment
- Offer some protection against no, or delayed, payment, as the invoice becomes the factoring company’s responsibility
- Remove responsibility, cost and stress of debt collection
Disadvantages of Invoice Factoring
- Decreases Profit Margins
- People’s Perception
- Only Commercial Invoices
- Leniency In Credit Terms Affecting Productivity