Businesses that are just starting out have a lot more than simply office space and utility bills to concern themselves with. Before they ever produce a deliverable which will bring income, they need to hire and possibly pay employees, purchase the resources required to supply the deliverables and look for other clients which will allow them to repeat this cycle. Without a history of credit, these businesses have little to back them up when working with financial institutions regarding start-up funds. That is where business invoice factoring comes into play.
Invoice factoring allows a business to continue with their daily operations and to hunt new business without having to stress about how they’re going to buy the merchandise or service the new business requires. Called factoring, a business delivers an item or service to a credit-worthy company, then sells the invoice to a factoring company, or factor. In exchange, the factor pays the business a percentage of the funds it’s owed and send the invoice to the credit-worthy company. When the credit-worthy company pays the invoice (usually within 60 days), the factor deducts a little transaction fee from the amount received and sends the remaining percentage to the business.
The benefits of invoice factoring are two-fold.
Benefits to the Factor
Factors realize that companies that do business with credit-worthy customers can use their clients to indirectly vouch for them. Factors know that an invoice may be a client’s promise that they’re going to buy the services or products delivered, and by choosing companies that work with reputable, credit-worthy clients, they’re nearly always bound to get a positive return on their investment.
Benefits to the Business
Operating a business that has got to wait 30, 60 or 90 days for an invoice to be paid can halt operations as resources for brand spanking new customers must be replenished before old customer funds are received. Like providing a loan to their customers, clients that need to wait for funds are crippled in using the money their customers owe. Invoice factoring allows a business to receive the cash upfront on invoices that have yet to be paid. This enables the business to continue on with its day-to-day operations without having to stress about its income.
Businesses maintain control over which (and how many) invoices are sold to the factoring companies, thus controlling the quantity of capital they receive. They will systematically use this to extend production when necessary, increase their purchasing power and improve their credit by consistently having cash on-hand to pay bills and payroll. They also remove the burden of collection costs and win the battle against clients that are slow to pay.
By choosing invoice factoring over capital investors, business lines of credit or angel investors, a business is allowed to focus their time on running their business, and not on issues associated with income.
Factoring your Invoices is straightforward and fast to get your business cash when you need it most. Reach out to Zena Financial today to see how we can help!
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