Cash Flow Factoring – When Sooner is Vital

Cash Flow Factoring – When Sooner Is Vital

Cash flow is one of the main reasons people seek out a factoring company. Most small to medium-sized business owners fully understand the need for steady and reliable cash flow. While it's fine to have several hundred (or even thousand) dollars in invoices, that doesn't help you pay the company bills. Take a look at some examples of how cash flow factoring can help.

In a typical business that uses an invoicing system, the time between providing the product or service and getting paid for it can be pretty extensive. Most invoices are listed as due in thirty days. That means that it may very well be thirty days before the client pays.

The fact that a small business enters into a cash flow factoring deal will help solve that situation. There are several options and it becomes merely a matter of convenience and choice for the business as to which they should take.

Important Things to Remember

One of the important things to remember is that you're selling those invoices to the factoring company, and that the client isn't going to be billed until after you've sold the invoices. Some companies only pay outstanding invoices on a certain day each month. With that in mind, it may be best to invoice at a specific time each month so that your clients are getting invoices well ahead of that payment date. Even though you're not sending invoices directly to your clients, knowing their payment practices could help you better plan invoicing dates.

Some companies may do cash flow invoicing only at specific times, choosing instead to take care of invoicing themselves at other times. For example, you may need an instant cash boost around the first of each month, and may choose to do cash flow factoring only at that time. Remember that you pay a fee for the cash flow factoring. Since small businesses typically need to count every penny, it may be in your best interests to collect on some invoices without sending them through the factoring company in order to save that fee. Check with your factoring company to be sure that's possible before you take that step.

Cash Flow Factoring With a Specific Purchase

It may also be possible to do a cash flow factoring for a specific purchase. For example, you may have office equipment that has to be replaced or have a large order and need additional supplies. When those situations occur, you may not have the cash on hand to deal with them. Cash flow factoring allows you to deal with those issues without taking out loans or taking on large credit card debt.

Invoice factoring works like this. You start by choosing an invoice factoring lender. Once you're approved, you'll create invoices for each job you complete, just as you would if you were directly invoicing the customer. Then you send the invoices along with supporting documentation to the factoring company. Supporting documentation is usually something that verifies that you did indeed have authorization to perform the work and that the customer does owe you the money. It might be signed delivery confirmations or signed work agreements. The point is that the factoring company will likely require something to prove that the customer has agreed to pay.

Before you choose a provider for cash flow factoring, be sure that the lender can meet your needs.