Businesses that are Just starting out have more than just office space and utility bills to concern themselves with. Before they ever create a deliverable that will bring income, they need to hire and possibly pay workers, purchase the resources necessary to create the deliverables and search for other customers that will enable them to repeat this cycle. With no history of credit, these companies have little to back them up when speaking to financial institutions regarding start-up capital. Invoice factoring Allows a company to continue with their everyday operations and to seek out new business without needing to worry about how they will pay for the service or product the new business needs. Called factoring, a company delivers a good or service into a credit-worthy business and then sells the bill to a factoring company, or variable.
In exchange, the factor pays the company a proportion of the funds it is owed and sends the bill to the credit-worthy firm. When the credit-worthy firm pays the bill, the variable deducts a small transaction fee from the amount received and sends the remaining portion to the enterprise. Factors realize that Companies that do business with credit-worthy clients can use their customers to indirectly vouch for them. Factors know that an invoice is a customer’s promise that they will pay for the products or services delivered, and by selecting companies that work with reliable, credit-worthy customers, they are almost always sure to have a positive return on their investment. Operating a business that must wait 30, 60 or even 90 days for a statement to be paid can stop operations as funds for new clients must be replenished before old client funds are received.
Comparable to providing a loan to their clients, clients that have to wait on funds are crippled in utilizing the monies their clients owe. Invoice factoring allows a company to have the money upfront on invoices which have yet to be paid. This enables the business to continue with its daily operations without needing to worry about its cash flow. Businesses maintain Control over which bills are offered to the factoring companies, thus controlling the quantity of funds they receive. They could systematically use this to boost production when required, increase their buying power and increase their credit by always having money on-hand to cover bills and payroll. They also eliminate the burden of collection expenses and win the struggle against clients who are slow to pay. By choosing invoice factoring over capital investors, business lines of credit or angel investors, a company is permitted to concentrate their time on running their business, rather than on issues related to cash flow.