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Invoice Factoring Resource International An information and solution resource |
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Benefits of Invoice Factoring?
Invoice factoring is a service designed to provide an alternative financing option for almost every company. Below is some of the more significant advantages that invoice factoring affords.
Eliminates the Billing Cycle A major contributing factor to a positive cash flow is the company's billing cycle. It is the length of time between delivery of the product to the customer and when payment is received from the customer. Billing cycles vary widely between businesses and are largely dependant on the complexity of the products and services that the company is selling. Longer billing cycles mean your company must wait longer periods in order to get paid, placing greater strain on the company's cash flow.
Accounts receivable factoring is one way of mitigating the uncertainty associated with the timing of accounts receivable collections. It almost eliminates the billing cycle entirely because many factoring companies pay in as little as 24 hours from the time the invoice is produced. Instant cash is a tremendous benefit that many companies rely on to maintain a positive cash flow.
Instant Working Capital Securing the necessary financing to maintain operations and to grow a business is a huge task and can be a frustrating one. Conventional lenders require detailed business plans, tax returns, and years of financial statements that shows your company's performance meets certain lending criteria before they will offer commercial financing options to meet your company's working capital needs.
This takes a great deal of time and effort, not to mention money, to develop. Many small businesses don't have the time or the expertise to respond to the demands of commercial lenders. Invoice factoring provides a way to get instant working capital without a time consuming loan application. In fact, invoice factoring allows the company to get the cash it needs debt free because factoring is not a loan.
Outsource Collections Collecting accounts receivable takes time and effort. Unless your company is big enough to support a collections specialist, the job often falls on management. Invoice factoring effectively outsources this activity to the Factoring company and frees up valuable time for management to focus on more important matters, like growing the business.
Other Benefits
A Word of Caution Invoice factoring is not without its drawbacks. Even though most companies can take advantage of invoice factoring, it doesn't mean that it is a good idea for your company. Be sure to educate yourself on these drawbacks before you make the leap into invoice factoring. |
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The purpose of this site is to provide general information about issues involving invoice factoring. This site is not intended to substitute for professional financial or legal advice but instead is a general interest site where people can learn more about issues involving the subject matter. Copyright IFRI 2006 - Invoice Factoring |
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