While many businesses have found factoring and invoice discounting a useful way to increase cash flow and combat late payment, there are certain business types which tend to find it even more useful. Any business which issues invoice payment terms to customers, which are usually other businesses, could use invoice finance, but which businesses could find it especially handy?
New start up businesses could find that invoice finance is a viable option for them to raise funds. With the increasingly stringent nature of bank lending requirements, many start ups may find it difficult to raise money through traditional channels. This can improve cash flow without new companies taking on mounds of debt, which is definitely something many will be looking to avoid in the current economic climate. If your new company has customer orders, then these may be suitable for factoring – which can release 90% of their value within 24 hours, thus increasing your business cash flow.
For more established businesses with a number of clients, cash flow can often become tight if you’re waiting for payment from a handful of large clients who make up the bulk of your income. Selective factoring means you can choose to factor only those invoices which will allow you achieve healthy cash flow, helping you to cover all your day to day running costs. This is especially true if you deal with large customers who are slow to pay, which is a common occurence. Big customers buying from small suppliers will often use their weight and bargaining power to drag out payment to small companies, who will feel unable to argue. This is where factoring can help.
If you trade internationally through exports, again invoice finance can help. Factoring means that invoice collection is handed over to the factoring lender, so if your lender is able to deal with international clients, they will take the strain of dealing with credit collection in a foreign country off your hands. This is especially handy for smaller businesses.
Invoice factoring has a whole range of uses, and these are just a few of the circumstances where it might be especially helpful.