Small businesses, more than ever, are facing cash flow challenges. To keep your business running efficiently, you need cash on hand for payroll, inventory and all your expenses. Invoice factoring can provide a solution, letting you have consistent cash flow independently of when your clients pay your invoices. Let’s look at what small business factoring is and how it can help you.
What Are Factoring Services?
Invoice factoring is a type of financing in which accounts receivable are sold to factoring companies, who then collect payment from customers. You may be a good candidate for small business factoring if any of the following applies to you.
- You have business customers who you invoice and have to wait to collect payment.
- Your cash flow is inconsistent. Your customers may be slow to pay, which is typical of many large companies and government agencies.
- Your sales cycle is seasonal, which can lead to cash flow difficulties during slow periods.
- You need better cash flow to meet your expenses, payroll, or invest in areas such as inventory.
- You want to take advantage of growth opportunities such as investing in equipment, hiring more help, opening a new location, and entering new markets.
- You’ve been turned down for a bank loan and need funding.
With invoice factoring, your business is freed from your clients’ payment schedule. The factoring company will pay you immediately. Aside from getting paid sooner, you are also released from the responsibility of collections.
Advantages of Factoring Over Bank Loans
Why should you consider small business factoring when there are so many other funding alternatives? The first place most businesses look when they need funding is a bank loan. However, there are several advantages that factoring has over traditional loans.
- It can be difficult for smaller or newer businesses to secure a bank loan. Banks look at how long you’ve been in business, your credit score and collateral. By contrast, factoring companies focus on the creditworthiness of your customers.
- Traditional loans take a long time to process. From filling out the paperwork to waiting for approval to actually receiving your funds can take months. With factoring, the application and approval process is brief and generally takes about 3-5 days.
- Saves you the trouble and administrative costs of collecting payments. Your customers will pay the factoring company.
- You are not limited by a set amount like a bank line of credit. Factoring can grow with your business. As long as the factor can approve your customers credit, they can factor your growing invoices.
How to Start Factoring Your Invoices
The process for small businesses to get started with factoring is quite straightforward.
- Apply for factoring with a reputable company.
- Supply your customers with goods and services as usual.
- Submit invoices to the factoring company. You can choose to submit some or all of your invoices. (Check with the factoring company first, some will require you to factor all of your invoices or a certain amount per month.)
- The factoring company verifies that orders were fulfilled and sends you payment for the invoices.
- Invoices are sent to your customers, who pay the factoring company.
Industries That Can Benefit From Factoring
Invoice factoring is suitable for small and midsize businesses in many industries. Almost any business that has customers who pay by invoice can apply. Businesses that factor include:
- Temporary staffing
- IT Consulting
- Food and Beverage
- Oil & Gas
- Utilities installation & maintenance
In addition to these industries, factoring works for a wide range of businesses that conduct B2B sales.
Why Businesses Choose Riviera Finance
Riviera Finance is a company that’s been helping with factoring services and small business funding for more than 50 years. With Riviera, you can expect a simple application process, dependable and personalized service, maximum cash advances and 24/7 access to your accounts.