How to improve the cash flow of your small business with the help of factoring?
Sales can be extended by extending credit, but you cannot forget your cash needs while waiting on your customer’s payments. You need cash for the inventory needs and to pay the employees’ salaries on time.
A widely used method is Freight invoice factoring to maintain the cash flow. Now you might be wondering what freight invoice factoring is? Let’s take a look at it with the mentioned advantages.
What is Freight invoice factoring?
The sale of receivable accounts can be considered as factoring. In simple words, we can put it as a way to generate cash immediately by selling your invoices at a discount instead of waiting for your customers to pay you. Therefore, factoring is very beneficial to maintaining consistent cash flow.
The modern factoring industry was born a long ago in the 15th century with the birth of the Ottoman Empire and also the discovery of America by Columbus. It took different shapes and evolved along the way in Europe, Britain and eventually in America.
Factoring can also be stated as a method of Financing that improves your slow-paying invoices resulting in a better financial position for the whole company by getting cash back into the business. To know the advantages of Freight factoring, read the article further.
Advantages of Freight Invoice Factoring
It has improved cash flow.
The essential value of factoring is increased cash flow. The payments are received quickly after a customer’s statement of delivery and invoicing.
The first-time purchase of invoices from a business includes at least 1 or 2 days of checking the customers’ credit ratings while communicating the discount rate.
No unnecessary debt.
Factoring cannot be termed as a loan; instead, it is simply the sale of assets providing a good measure of alternative finance for businesses that cannot qualify for traditional debt financing or if they do not want debt.
In most factoring, all the rights are purchased by a factoring company, leaving the seller with no responsibilities for the collection. The cost and time anticipated by the factor are considered while computing the discount price of the receivables.
Where there is recourse factoring, you can be secondarily liable for the invoices that are not collected. Even when the factoring company undertakes the debt collection, you remain accountable for paying the cash price that went uncollected.
Easier and quicker option for financing.
Compared with any other method of conventional financing, getting factoring done is quite an easy way to maintain your company’s cash flow.
Another benefit of factoring is that you can get solutions in more situations from the factoring companies as they understand the company’s situation and conditions. You’re also likely going to get a quick approval decision, which makes factoring more appealing.
No hasty long-term contracts.
Finance companies that maintain and work on factoring are flexible and hold no long-term contracts. Most factoring companies in the market offer flexible short-term contracts with affordable termination fees.
Your company’s financial position without holding any long-term contracts and unnecessary debt factoring can be improved a lot with the help of freight invoice factoring, which is not only easy to tackle but a quickly and widely used method to improve cash flow.