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How to Use Invoice Factoring to Boost Cash Flow

Invoice factoring is a versatile tool that can be used in several different ways—funding new projects, hiring new personnel and even boosting your business’ cash flow. How? It’s easy.

Use invoice factoring as a way to fix your company’s cash flow problems. Those slow-paying clients of yours can definitely throw a wrench into your business’s schedule. Your employees need to be paid every other week, but your business gets paid every 60 days. See the problem here?

How Does Invoice Factoring Help?

Invoice factoring boosts your cash flow by making sure your company has a steady influx of capital. Without having a steady amount of money, your business can’t plan for growth. It’s near impossible to get employees to put in hard work if they’re only getting paid every two months. It’s also really difficult to expect your marketing campaign to work if you can only afford to implement it for two weeks.

With steady cash flow, your business can continuously work on projects, run advertising and marketing campaigns and pay the bills needed to keep your electricity on, doors open and employees compensated.

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Case Study Example:

For the sake of simplicity, let’s say you own a small business on the outskirts of a city. Your company, WebWorld, is a B2B business that frequently works with customers that take 30 or more days to pay. You have a few employees that work for you, and you are in charge of their scheduling and payroll, as well as running the business as a whole.

WebWorld is building several new websites for a large data firm. The project is supposed to take up to a year to complete. This data firm is well known and pays well, but they only agreed to work with WebWorld if they accept payment on a 60-day basis.

WebWorld agrees to take the job, and their employees begin building the site. WebWorld decides to sell their unpaid invoices to a factoring company so they can afford to pay their employees every week for their work on the data firm’s websites. The money gained from invoice factoring also goes towards paying for the space WebWorld rents out to house their operations.

Choosing invoice factoring means WebWorld can have a steady amount of cash flow to operate business instead of piling on debt to pay its employees and utilities. This is because unlike a traditional bank loan or line of credit, factoring provides working capital that doesn’t add debt. It also means they can easily budget marketing needs and materials without having to estimate their monthly profit and loss statement.

How Can Invoice Factoring Grow Your Business?

Invoice factoring can also be used as a growth tool for your small business, no matter the industry. Use the money gained from invoice factoring to purchase new equipment or supplies that boost quality or reduce production time. Invest the money in training sessions for your employees. Grow your small business by putting the capital from factoring towards a new advertising or marketing campaign.

There are unlimited ways your business can use the capital gained from invoice factoring—just make sure the money goes toward company expenses.

Case Study Example:

WebWorld is doing very well. They’re billing several large companies that have long pay periods and are using invoice factoring to help regulate their cash flow. WebWorld’s owner stumbles upon this new technology that can help simplify their employees’ work designing websites.

Using the money gained from invoice factoring, WebWorld purchases the technology. After a few months, the owner look at their records only to see their employees are working much faster than before, allowing WebWorld to take on more projects, therefore increasing its revenue.

How does invoice factoring work?

So know you know how invoice factoring can boost your cash flow, but how does factoring work?

Step 1: Tell us about your business

Give us a little bit of background on your business – call us or fill out an online form to get started. We’ll use that information to match your business with a factoring company that fits your wants and needs. The factoring company then puts your business through a quick approval process.

Step 2: Submit invoices

Once approved by the factoring company, your business can start submitting unpaid invoices to them. The factoring company contacts your customers and verifies that the work was completed or the order was filled.

Step 3: Receive a cash advance

The factoring company now advances your business up to 95 percent of the invoice amount. The rest of the money will be kept as a reserve.

Step 4: Gather the reserve

From there, your business’ customers pay the factoring company on their normal payment terms. Once the invoices are paid for, the factoring company will release the rest of the reserve money to you minus the small factoring fee specified in your contract.

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