If you want to increase the sales in your business, then extending credit is an excellent opportunity for you in this regard. Cash is very important in any industry. But the important thing is where the money will come from in your business?
This article will discuss how to improve cash flow with factoring and invoice finance in 2021.
What Is Factoring?
When accounts receivables are sold, it is known as factoring. Businesses can sell their invoices and then make cash flow instantly rather than waiting for them to pay the company. If you are having trouble in the cash flow situation, this can solve your problem as a business. Factoring started back in the 15th century, and it is still being utilized in industries to maintain cash flow.
Advantage
The advantage of factoring is that the factoring company which will purchase your receivable will take the title to the invoices and will collect them when they are due. The company will be responsible for all the costs and the work that manages the debt from customers.
Disadvantage
There is one disadvantage to factoring, and it is that it’s not inexpensive! This process is utilized with growing businesses that are having cash flow problems temporarily. But if you are a business with cash flow problems in the long run, then this is not a good thing for you to implement in your company.
Benefits Of Factoring
1. Instant Cash
Factoring is a good way to instantly improve the cash flow in a company because it brings in quick cash. As a business, you can receive immediate payment in cash after invoicing a customer order at the time of shipment. The turnaround time is only 24 hours. When a business is making a purchase of invoices for the first time, it will take at least two weeks to check the credit ratings.
2. No Debt
There is a misconception about factoring that it is a loan. To clear out all the doubts in your mind, it is not a type of loan, but it is a sale of assets in the form of invoices. If you are a company that does not want to indulge in more debts, then it is a good option for you if you are looking for an alternative way to finance your company.
3. Fewer Collections
In factoring, the seller does not have any responsibility for collection because the company will purchase all the rights in the invoices. The factoring company will be responsible for the debt collection, but in the end, you will be the one who is liable to pay any part of the cash price that was not collected.
Conclusion
If you are looking for an alternative way to finance your company in the short term, then factoring is a good option for you in this regard. But if you are not a company with long-term cash flow, then it is not recommended for you because it can cause trouble for you as a small business. Otherwise, it is a great way to bring quick cash flow into your organization.
Tags: budgeting, Business, Cash Flow, credit, Debts, economy, financial planning, loans, money
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