Most businesses work with more than one client. If these customers don’t pay on time, the business suffers, naturally, because there is no money coming in to run it. When the invoices issued by the business are sold to a factor, there is a regular inflow of cash, making it possible for the business to take care of its operational expenses.
In fact, as the business owner, you can actually depend on this incoming cash to be available whenever you need it, allowing you to grow your business, hire staff, and buy new equipment. It also allows you to take care of other regular business expenses, like payroll, taxes, raw material, advertising and promotion, and capitalizing on discounts with cash payments.
You must have experienced the stress of accessing traditional means of getting funds where it sometimes takes months to process. Factoring lets you avoid all this by giving you access to money that really belongs to you – only it puts it in your hands today, rather than weeks later.
Manufacturing business are not the only ones that can benefit from factoring. Even if you run a service business where the product range is small and the payroll expenses are high, you need not think twice about accepting new business because you can be confident that you will be able to meet the increased payroll through factoring.
Factoring can work for any business owner who would like to stop worrying about how to meet business expenses, especially if he or she has creditworthy customers, because in factoring, this is what matters most. The reason is simple – it is your customers who must pay for the invoices. Since banks focus on the borrower’s financial muscle, small businesses turn to factoring.
The most interesting thing about factoring is that the cash you can access is directly proportionate to your sales, which means the more sales made, the more cash you can get, because more sales equals more invoices to factor. Your focus, therefore, must be to build a creditworthy clientele, because therein lies your working capital.