November 4th, 2013.
Which type of businesses use invoice factoring?
Whenever people hear about invoice factoring they tend to assume that it only relates to huge companies and blue-chip organisations, but this isn’t the case. Invoice factoring is available to businesses of all sizes, whether you’re an individual tradesman or an international brand although the amount you’re likely to be covered for will vary greatly depending on the size of your income.
Who can use it?
Any business who provides goods and services to their clients before they receive payment would benefit from invoice factoring; however it would not be necessary if the payment was provided beforehand. Using invoice factoring brokers will prevent you from getting caught in the lurch if your contacts refuse to pay or are late paying – unpaid bills are one of the biggest threats to small businesses and have the potential to sink them completely.
Do you have a finance department?
For many small company owners they act as the CEO, head of marketing, and the finance department all rolled into one. Spreading yourself this wide will mean that some things will fall through the net and you may end up letting some debts slide by accident or you may end up not having the time to chase up missed payments. If this sounds like something you have to deal with on a day to day basis then invoice factoring could take a huge chunk of responsibility off your shoulders. If you have a complete finance department then employing invoice factoring will be a bit redundant as the activities they help with should already be covered by the finance team.
Are you profitable?
This method of increasing your capital is designed to give you the income you’ve been promised not trying to generate money that simply isn’t there. The main mistake many companies make is in thinking that invoice factoring is just for businesses that are struggling – it isn’t. It is there to provide growing businesses with finance that can help them expand and survive without having to fight with their clients every month to get paid on time.
Businesses that don’t have a sustainable business model will not see any benefit from this type of financing and would be better off looking for a loan or government grant. Factoring will only give you a percentage of what your invoices show, and unless your invoices are enough to settle your debts this will be slightly useless.
Small and large
As previously mentioned invoice factoring can be used by businesses of all sizes, as you will receive the amount of money that you have been invoiced – nothing more, nothing less. This means that companies who have outstanding bills of over £100,000 a month will be just as likely to receive this funding solution as those who only have £1,000 a month. However the percentage you pay in fees will change drastically depending on the amount that you need. In order to get the best possible deal you should talk to invoice factoring brokers who will find the perfect finance for your needs.