5 Reasons to Use Invoice Factoring to Help Your Cash Flow Problems

Date Added: May 23, 2013

Cash flow problems used to be something of a taboo but since the economic problems there are more businesses struggling than ever before. Invoice factoring is one option to help you with your cash flow issues, where you borrow money off a company for a percentage of the money on your invoices and pay it back when the money comes through. Here are five reasons to consider an invoice factoring company for your cash flow needs.

Gain the money you need when you need it: one of the biggest problems with cash flow is that you need it to pay your bills. If you don’t pay your bills, you risk going insolvent and cease trading. Factoring your invoices will give you that money you need so that you can pay all your bills. This also helps to keep your business’ credit rating in check and limits the amount of negotiations you have to do with your own creditors.

A lower interest rate: thinking that a loan will be better than invoice factoring? There are many downsides to loans and one of those is the rate of interest. Invoice factoring companies understand the cash flow problems are not always your fault so keep the interest as low as possible; in fact, many have set fees depending on the amount you want to borrow instead of a rate of interest.

The company takes control of your books: there is no need to divide your money as it comes in and worry about paying the right amount. The factoring company will take control of your accounts so that they gain a set percentage – that of the amount you borrow – from the invoices as they are paid. They can also give you tips on improving your cash flow so you do not suffer the same problems in the future.

The company takes control of the debt: this doesn’t happen with all but many factoring companies will take on the full debt. They will chase your clients for the money instead of you having to spend extra money doing it. There are downsides to this – such as no control over the amount of pressure placed – but there is more chance of the client paying the money owed.

No need for monthly repayments: another problem with a loan is that you have to pay back monthly repayments. This isn’t the case with factoring. You pay back when you have the money; not on set dates each month whether you have it or not. There are some limitations to factoring but they are not as strict as bank loans, which could lead to future financial problems.

Factoring your invoices could be the best thing that you have ever decided to do. You will get the money when you need it and will avoid financial problems. However, this is not something to rely on regularly. If you struggle with cash flow every month, it will be time to look at your invoicing methods and your outgoings to free up your cash.

Keith Tully has written many articles for Real Business Rescue on the business niche. She has recently written about director liabilities, tax implications and the legalities of insolvency, as well as improving cash flow problems. Real Business Rescue offers professional advice from Insolvency Practitioners to help businesses decide on the best cause of action when struggling financially.