Unpaid invoices in a filing cabinet

8 Reasons Every Small Business Should Consider Invoice Factoring


Cash flow is fundamental to a business. If you run a small business, you will know that the amount of money you have coming in can vary a great deal, making those months of fewer sales very difficult for you. One solution to this is to take advantage of an invoice factoring company.

Business invoice factoring, simply put, is a service that provides the small (or large) business owner with immediate payment on invoices that might otherwise not be paid for 30, 60 or even 90 days. Invoice factoring companies pay you between 75 – 90% of your invoice and then the rest of the balance on customer payment; minus the fee that they require – known as the invoice factoring rates. This is an excellent way of receiving an injection of cash when your business might urgently need it. There are many reasons you should consider business factoring companies, read on to see eight of the best:

#1 It’s a Speedy Simple Process

Loans can often take weeks or even months to receive. Opting to use an invoice factoring company is far more straightforward. First you have to apply to the company (do shop around for the best company for you). It takes anywhere between 5-10 days to have your application approved. Once you are set up, the process becomes even quicker. Most reputable invoice factoring companies will complete an invoice transaction in about 24-48 hours. Leaving you with cash to continue running your business.

#2 Strength of Credit Is Not the Only Consideration

Unlike a bank, when applying for invoice factoring, the company will take many factors into consideration when trying to determine if you are a suitable candidate. They won’t simply look at your credit and decide that you are too much of a risk. In fact, it is the credit of your clients that tends to be more important.

You might also have some concerns if you are a new business. Again, a credit factoring company will look at all of the possibilities. A good invoice factoring company will consider your future potential as well as your current situation. If they think you have the potential for growth, then in the long term your custom could also prove lucrative to them.

#3 Invoice Factoring Is Not a Loan

You do not pay interest to invoice factoring companies. Invoice factoring rates (which are anywhere between 1.5 and 4.5%) are the fees the companies charge to give you access to immediate cash, giving you secure knowledge of how much it is that you owe.

#4 Flexible Factoring

You are rarely tied up with an invoice factoring company. You remain in control of the invoices that you wish to factor. If you find that you have had a particularly good month, you are under no obligation to use the service at all. However, the next month you may decide that some, if not all, of your invoices are considered for factoring.

#6 Reduces Administrative Tasks

Since the invoice factoring company is now responsible for the payment of the invoice, they are also responsible for the collection. You are free to focus on your business whilst the invoice factoring company will ensure that your invoices are paid by your customer on time.

#7 Invoice Factoring Can Improve Credit

Many small businesses will probably take out a start-up loan to pay for initial overheads. This can have an impact on your credit rating. When you have your own invoices, supplies and staff to pay; loan repayment can be an additional cost that wipes any additional funds out. With invoice factoring, you have the potential to pay your loans off quicker. Increasing your credit rating and allowing you to concentrate on the more important details of running a business, like growth.

#8 Better Forward Planning

Knowing that you will receive funds regularly and quickly means you are in a better position to plan what you can do with your money. With an increase in cash flow you can plan a marketing campaign to build your client base or purchase your supplies in a larger quantity and at a more reduced rate. Meaning you are saving money and you are able to provide a far more reliable service to your customers.

Using an invoice factoring company does not mean that you are in some way failing. It simply means that you are being smarter with your cash flow and thinking about your long term profits rather than running your business on a month by month basis. Most importantly of all, it alleviates the stress of a rapidly diminishing cash flow and allows you to focus more on running a highly successful business.

One Response to 8 Reasons Every Small Business Should Consider Invoice Factoring

  1. This is a good breakdown of how to invest your money smartly and make better decisions in business. Thanks for the post.

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