How To Find Success with Invoice Factoring
In a way, factoring is similar to other business tools. If you use power tools wisely, it can reduce the amount of time you spend on each job and boost your profits. However, using the tools incorrectly can cause damage and waste time that you could be spending elsewhere.
Invoice factoring, also known as accounts receivable financing, can be a powerful financial tool. Here are several areas to focus on for maximum business success:
Use Factoring With the Right Business Needs
AR financing isn’t the only tool in your financial arsenal. The fees that accompany factoring are relatively small, but even these small percentages can add up over time. That’s why AR financing is designed to be use as short-term funding. It excels for this purpose, giving your company amazing flexibility for investing in opportunities and boosting cash flow.
When it comes to six-figure equipment purchases, however, a term loan or SBA loan is usually a better choice. These loans feature even lower interest rates, so they can potentially save you thousands of dollars. The downside is that they take longer to process.
As you can see, when you choose the right type of financing for the right need, the benefits are incredible. Factoring puts money in your hands in a few days, while traditional loans are more appropriate for long-term purposes.
Check the Fine Print
When you partner with a trustworthy factoring company, it makes your life much easier. However, it’s still a good idea to check the terms of the AR financing agreement. Helpful lenders should be transparent and upfront about fees. Don’t feel bad if you need to ask the bank’s financial adviser point-blank to explain what certain terms or arrangements mean. A good lender is happy to help you select the best fit for your company’s finances.
One important question to ask is regarding what happens if your clients don’t pay an invoice. Will you have to buy it back from the lender? When looking at the interest rate charged per invoice, take note if there are other fees involved, such as maintenance fees for the account or other costs. That way you know exactly what to expect when it comes to costs.
This financing option is excellent for taking care of business emergencies, and it also gives you working capital for things such as inventory purchases and payroll. You decide whether to factor one invoice at a time or your entire accounts receivable department. To get the most out of this versatile type of alternative financing, remember to use it correctly.