Many industries work with clients on flexible payment schedules with long terms, but what happens when you need cash to pay your bills and your client doesn’t have to pay for another two months? Business can be doing extremely well, and still those unpaid invoices can be wreaking havoc on your books. With invoice factoring, you can get your money on a schedule that works better for you. Here’s what you need to know.
For many businesses, needing some extra cash means you need to apply for a business loan, which can take a lot of time to prepare for, let alone get approved. Instead, you can sell those invoices to a financing company, which will disburse most of the cash when you need it and the rest when the invoice is paid, minus their fee. These fees can vary, and the percentages can add up over time, but developing a good working relationship with a financing company can help you get cash quickly and with little fuss.
There’s No Complicated Application Process
You don’t need to offer up your valuable assets or present your incredible credit score for scrutiny. In many cases, you don’t even need a long history of being in business. These financing companies care about the cash value of the invoices you’re bringing to the table, and the ability of your clients to pay on time and in full. There’s no mad rush to gather all the paperwork you’d need for a traditional loan, and there’s no waiting for months to hear back or close, either.
Your Customers Could Ruin It for You
While this process seems easy and convenient for you, it’s important to keep in mind the role your customer will play. If your customer has a bad habit of not paying or is regularly late with payments, your financing company may not be eager to buy their invoices. A client’s poor credit could become your problem, so be wary of who you do business with. If they don’t pay, you may need to pay back the invoice to the company. It’s also important to note that the financing company could be dealing directly with your customers, and any bad experiences could reflect negatively on your business.
Selling your unpaid invoices can be a great option for some fast cash, but it can also greatly affect your business. Do your research before deciding whether invoice factoring is the right choice for your company.