Tue 3 Jun 2008
Using Invoice Factoring To Help Your Small Business Grow
If you are running a business that involves supplying products to clients on a credit basis, then you may have realized that this method is creating a bottleneck in your cash flow.
This is where invoice factoring can help you out.
What Is Invoice Factoring?
This is a process by which factoring companies "buy" your credit invoices after you have created the invoice in your client's name. The factoring company will then pay you the invoice amount minus their 'factoring fee', normally between 1.5% to 4% of the invoice value.
The fee will depend on the credit rating of your client, the number of days of credit given by you to your client and the total volume of business that you provide to your factoring company.
What Is The Advantage?
The biggest advantage in this arrangement is that your cash flow will improve dramatically, since you will get your money within one or two days instead of waiting for the due date for your payments.
You can now take care of your business expenses. You can also use the money to purchase your products in bulk quantity, thereby getting additional discounts. You will then be able to service larger orders and also use the money to expand your small business.
Why Not A Bank Loan?
A bank loan is a fixed amount of money lent for a fixed period of time. A loan will also require documentation and collateral - and you will have to pay interest as well.
Invoice factoring will require less documentation and will only depend on your credit invoices. Thus, this system can grow along with your business, without costing you more money.
Where You Can Find a Factoring Company
There are many factoring companies advertising in various media, including the Internet. Cross-check their services before hiring any one of them.