4 Tips to Help You Get the Best from Invoice Factoring

The US is home to over 28 million businesses, the majority being small businesses and startups. However, only two-thirds of businesses make it past the second year, and only one third reach the ten year mark.

Though some businesses fail, it is not always because the idea is not viable. In fact, one of the main reasons for business failure is poor cash flow management. Cash flow is the beating heart of any business. If a business is cash-strapped, it will be unable to purchase inventory, which affects service delivery and limits the growth of the company.

According to a US Bank Study, cash flow problems are a contributing factor in 82% of the businesses that fail. Most companies have cash flow problems due to unpaid invoices. Fortunately, with a reliable service for international factoring, you can sell your outstanding invoices to access cash when you need it most.

Invoice factoring services allow businesses to continue with day to day operations without delays. However, for you to get the most out of your advance business capital, there are some things you should know.

Know Your Needs and Do Not Deviate

The key to succeeding as an entrepreneur is being innovative and planning ahead. As such, based on the previous months and years sales as well as your projections, you should know what position your business needs to be in at a later date.

Invoice funding should only be used when a lack of liquidity will limit business operations. Therefore, you should only seek a service for international factoring with a specific target. This is because taking a larger amount than you need will translate to unnecessary factoring costs, which will come out of your profits.

Always balance your short term and long term needs when taking advance business capital.

Use Invoices from Your Most Reliable Customers First

Invoice factoring involves selling your accounts receivable to a service for international factoring. Therefore, the burden of collecting on the unpaid invoice is transferred to invoice funding companies. However, if a customer fails to pay the invoice, the factoring company may levy some additional fees on your company.

As such, you should first use the invoices of clients who are prompt with their payments. This will reduce any chances of friction between them and the international factoring company, which might ultimately lead to friction between you and both parties.

To ensure that all your relationships remain intact when taking up factoring financing, you should first alert your client about it. This is because it may seem rude to transfer their obligation to you to an invoice funding company without informing them. If you tell them about your decision, they will be more comfortable with the move and remaining as your client.

Read the Fine Print

Do not sign any advance business capital factoring agreement without a firm grasp of the details. Be keen on the fees charged and the steps taken in the event an invoice is unpaid. It is important to know each aspect of the process as it prepares you for any eventuality. Even the most reliable customer can have challenges in the future. Being aware of what will happen if they miss a payment allows you to come up with contingency plans which will help preserve all the relationships.

There Are Different Types of Factors

There are two main types of invoice factoring, recourse, and non-recourse. For the former, you are required to repurchase unpaid invoices. With the latter, all the responsibility lies with the factoring company.

With one, you are free from any liability, but it is good to know that the fees charged also vary. Therefore, you should select the option that’s convenient for your business.

Is Invoice Factoring Worth It?

The business landscape is highly competitive. If your business is not able to grow with the industry and stay ahead of the competition, your customers will take their business to more reliable companies. By working with a service for international factoring, you can stay ahead of the pack and see your business flourish.