Invoice financing is an increasingly popular way for companies to improve their cash flow.
It works by providing business owners with immediate access to the money earned through sales. This capital is levied through a third party provider, who secures it against a business’ invoice ledger. Thus, essentially, invoice financing is a means of borrowing capital against capital that you’ve yet to receive.
There are two main types of invoice financing: invoice factoring and invoice discounting. The former tends to be favoured by SMEs and start-ups; the latter by larger enterprises with substantial capital and administrative structures behind them.
If you’re a smaller business and you’re reading this, then invoice factoring from companies like Touch Financial is an option that you’d probably like to know a bit more about. If so, simply read on…
How Could Factoring Help You?
Improved Cash Flow
Factoring has a number of benefits for SMEs, chief amongst them the ability to improve your cash flow. It’s a common problem amongst small business owners that cash flow simply doesn’t match your business’ performance, thanks to the gap between raising an invoice and being paid.
Factoring is an ideal solution to this issue. In most cases, you’ll be able to access around 90 per cent of the total value of your invoices in less than 24 hours.
One of factoring’s greatest benefits is that it’s a wonderful option for expanding your business without accumulating substantial debts, as it allows you to borrow money against money that you’re already owed rather than capital that you’re only hoping to earn. Thus, you have the cash to expand, without the increased risks of loaning, for example.
One of the main differences between factoring and discounting lies in your financing provider’s involvement in your business.
In discounting, the administrative side of things is taken care of by the borrower: it is this company that chases customers for payment of their debt, handles any accounting issues and interfaces with customers.In factoring, however, your financing provider will perform these functions on your behalf.
Larger, resource-rich companies are often loathe to involve a third party in their dealings with clients, yet for SMEs and start-ups this can have significant advantages.
Firstly, it reduces the burden on your own company resources, as someone else will be able to handle these time-consuming tasks. This is a wonderful way of reducing stress at work, and also frees up valuable hours every day for more important work.
Secondly, it can help to reduce company overheads, as there is no need to employ someone to perform these functions on your behalf. Thus, you not only get instant access to capital, but also an experienced third party who can take some of the burden from your overworked shoulders.
If you like the sound of that, then why not explore your factoring options today?