What Happens When Business Owners Partner With Factoring Companies?

Factoring is nothing new, but it is a financial planning resource that is getting more attention these days. Once considered a solution for financially troubled business entities, factoring has emerged as a practical means of managing cash flow to better effect. When business owners choose to partner with factoring companies, some wonderful things can happen. Here are a couple of examples to consider.

Access to Cash Flow Sooner Rather than Later

The basic structure of a factoring arrangement involves forwarding a batch of invoices to a partner who evaluates each invoice and then issues a lump sum payment to the business owner. In effect, the partner is choosing to buy that batch of invoices and pay most of their value to the owner up front. This part of the transaction usually takes no more than one or two business days to complete. In this scenario, the business owner could issue invoices on the first day of the month and have a sizable amount of money in the bank account by the third day.

This eliminates the need to wait and hope that most of the customers send in their invoice payments in thirty days or less. With money in the bank immediately, it’s easier to maintain a steady schedule for meeting the payroll, sending payments to vendors, and in general keep the books balanced.

Avoiding Late Fees, Penalties, and Damage to the Company Credit Rating

Having most of the cash from those invoices in hand quickly means paying obligations to vendors on or before the due dates. That eliminates late fees and other penalties being applied to those accounts. Over the course of a year, that could save the business owner a significant amount of money.

The fact that those vendors are paid on time also results in positive comments on credit reports. That will come in handy if the business owner ever does need to seek a business loan or a line of credit. It also helps out when prospective customers run credit checks on the company before choosing to do business with the owner.

While factoring may not be perfect for every business, it is a viable solution for many companies. Talk with a funding partner today and go through the specifics of this type of arrangement. There’s a good chance it would strengthen the position of the company and make it easier to compete in the marketplace.