Factoring Blog

Advantages and Benefits of Invoice Factoring

Invoice financing has been gaining prevalence as a way to finance companies that have cash flow problems due to slow paying customers. This short article will help you understand the advantages of invoice factoring.

The basics

What is factoring used for? Basically it’s a financial tool that helps your company if you are offering payment terms to corporate customers and are unable to wait up to 60 days to get paid for your invoices. It provides an advance on your slow paying receivables, which provides the company with immediate working capital that can be deployed to cover operating expenses. It minimizes the problems and concerns associated with slow paying invoices, enhancing your cash flow and ensuring that you always have funds available to cover your corporate expenses.

Advantages and Benefits

Here is a short list of the main advantages of factoring:

  • It’s easy to obtain: Perhaps the biggest difference between invoice financing and other types of business financing is that factoring is comparatively easier to obtain. The most important collateral requirement to qualify is to have good commercial customers.
  • Small companies can qualify: While most business loans and lines of credit are restricted to companies of a certain size, invoice financing  is available to companies of all sizes – especially small companies. Many factoring companies are even comfortable financing self-employed individuals.
  • Improved cash flow: The financing  line will improve your cash flow. It will give you the needed liquidity to cover operational expenses.
  • Extend credit with confidence: The factoring line will enable you to provide credit to your customers because you will be receiving quick funding from the financing company. When used correctly, a factoring facility will help  you grow your business because you can take on new clients (here is a sample case study of this).
  • The line is flexible: Since the line is tied to your invoices, it is flexible and will grow alongside your sales. This is a very important advantage because most companies grow when they use business financing correctly. Other financial products usually require the account to go through underwriting a second time in order to increase the size of the facility.
  • The facility can be funded quickly: When the company has cash flow problems – speed is of the essence. Most factoring lines can be funded in 5 to 10 business days.
  • Helps enhance the credit quality of your customer portfolio: Most factoring companies are well-equipped to perform thorough corporate credit analysis. You can use the expertise of your factoring company to review existing customers and new prospects, helping you select those that have the highest commercial credit quality.

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