How Factoring Can Help Small Companies Overcome Cash Crunches and Succeed

Of the many issues that can drag a small business down, struggling with cash flow can be the most dangerous. Even a company that does a healthy level of business can end up succumbing to this problem, with the need to pay bills and salaries not being balanced out by receipts.

As a look at this site will make clear, however, there is an effective way of getting help. When a business has outstanding invoices that represent money owed to it but not yet paid, these can be offered to a specialized company known as a “factor.” With money paid immediately against invoices that will come due in the future, balancing cash flows can become a lot easier.

A Long History of Making Business Easier

Services of this basic kind have been around for thousands of years. The well known Code of Hammurabi, for example, includes regulations governing a form of factoring. When Mesopotamian traders back then needed to stock up but had not yet been paid by their clients, they would regularly turn to factors for help.

Two Basic Styles of Factoring to Consider

Today’s versions of factoring, naturally enough, have evolved considerably from those ancient ones. Whereas factors have traditionally retained recourse to collecting from the clients who offer up invoices, another style of the service is widely available today, as well.

Under the “no recourse” kind of factoring, handing over an invoice will put an end to the original holder’s obligations. Should the debtor end up failing to pay the factor, this will mean that the business that issued the invoice will remain off the hook.

Naturally enough, this kind of factoring typically comes with a higher price than the other. Judging which will make the most sense in a particular situation can take some experience and thought, but factors will normally be ready to help.

Factoring Can Be a Powerful Tool When Used Responsibly

In every case, factoring an invoice will mean accepting at least a bit less than its face value. Factoring should therefore not always be the default option, especially when margins are thin. Given the value that the service can provide, however, working factoring into a company’s usual processes in smart, strategic ways can easily pay off.