Running a business can be a little hectic sometimes. For example, you may find yourself with a couple of invoices meant to bring you money but have no cash at hand. This can put you in a tight place, and your business may take a hit. Perhaps you need the money to take on another project or to finance your day-to-day business activities.
If you ever find yourself in this predicament, worry not. There is an easy way to get money flowing backing the business.
Invoice factoring is the process where you "sell" your outstanding invoices in exchange for cash at hand. Crown Financial, LLC advances 80% - 90% of the invoice total and then collects the money from your client. You get to run your business and have money in circulation without needing to wait for a month or even three for the invoice to clear.
If, at this point, you're wondering whether factoring invoices is good for your business, then read on to learn more as we double down on its pros and cons.
Pros
Here are some perks that come with factoring invoices.
Get money when you need it.
If you need money on short notice, then this is the best option for you. There will be less paperwork to do, and the procedure is straightforward.
Immediate cash flow
If you need money, bank loans can take a while to be processed and sent your way. On the other hand, factoring invoices guarantees you instant money, there is no long wait, and you can put the money into whatever use you needed it for in the first place.
Ongoing cash flow
For your business to thrive, you need to have money in circulation. Once you have a rapport with the factoring company, they can sort you out whenever you need money. It ensures that things keep running in the business without a hitch. Factoring invoices does not only save the day during emergencies; it can help with the regular cash flow needs too.
Your factor grows with you.
The more invoices you sell, the higher your chances of you getting cash when you need it. It is like developing a good credit score for when you need a bank loan.
Take on more work
Any business person can tell you the pain of bypassing great project opportunities simply because of a lack of funds. Luckily, factoring ensures that you can work on a new project without completing another because you have the money to get the job done.
Better chance to get approved
Bank loans require a lot of paperwork and have so many hoops that are hard to jump through. With the factoring option, all you need is to have trustworthy clients who honor their pay, are B2B and they are a domestic business. Your credit score will not be an issue, your client is on the hook for that.
Cons
Your factor works directly with your customers.
Since the factoring company will collect the money from the customer, you may run a risk of losing your clients. For instance, if the factoring company is harsh and aggressive when collecting the money from the invoices, this can work against you and ruin the relationship you built with the client. So make sure you choose a trusted invoice factoring company like Crown Financial.
Might pay higher fees than traditional loans
Typically, the factoring company takes away a percentage of your earnings. Most companies charge around 1 to 3 percent of your total invoice amount. While you will get the cash instantly, you lose a chunk of it. That is something you have to consider and figure out if it is worth it in the end. But not every factoring company is the same. Crown advances you more money and doesn’t charge anything for it.
Your finance depends on the customers' credit.
While the factoring company will not look at your credit, they will look at your customers. If they feel like they cannot trust the customer, they will not give you the money. They might also charge you a higher fee if they feel there is a risk attached to it. Always make sure to choose your customers wisely.
If you feel pressed for cash and there is no money in sight, or you want to know how your unpaid invoices could help you out of a tight spot, worry not. Our staff at Crowd Financial, LLC is willing to work with you and develop a solution that is beneficial to you. Reach us today at 281.646.2905 or check out our website here. You can also check out our blog to read more about factoring invoices and how it can benefit your business.