Invoice financing opportunities are used by many businesses in practically every industry to manage cash flow. Smaller companies often find that factoring is a more efficient way to handle on-demand cash from invoices, though. Single-person companies and freelance professionals especially choose to use this method over simple invoice financing because it brings efficiencies that are uniquely useful when you need to focus on your core business operations.
1. You Can Structure Your Budgets to Suit Your Business Cycle
When you use invoice billing to handle customer accounts, you open a lot of opportunities for your small business, especially if you provide services to other businesses. The flexibility offered to customers by this kind of payment structure often comes at a cost to your company, however, and it happens because your own pay dates become unpredictable.
Not only do you not know when individual customers will pay, you don’t even know how many invoices will be paid in a given week. Handing all of them over to a third party for collection every month or two means knowing when you can count on new funds, which is essential to creating firm operational budgets and sticking to them.
2. Factoring Outsources Labor and Frees up Your Time
When you have to manage an invoice pool, you use up time that could be spent on projects that bring in money. The less time you spend chasing payments from jobs you’ve finished, the more of them you can do, it’s very simple. When you opt to work with a factor instead of financing invoices, you essentially sell them onward, allowing you to close them out and move on from an accounting standpoint. That means no more time spent printing and sending reminder invoices and statements or making phone calls to clients who owe you late payments.
3. Its Predictable Costs Can Be Folded into Your Quotes
There are very few forms of financing that offer you a clear path to deferring the additional costs, but factoring is predictable enough when you build a relationship with a single financing company to allow you to confidently embed the cost of the deal into invoices.
That means when you know customers will pay early, you can afford to offer a discount, but you can wait until you see a pattern of payment before the invoice is sold forward to offer the lower prices. This preserves your bottom line while allowing you the cost savings that come with outsourced labor in your collections process, which helps a lot when you are the company’s entire labor pool.