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Why a small business should opt for invoice factoring? (PART 1)

Author: Stephen Perl
by Stephen Perl
Posted: Sep 11, 2018

Invoice factoring proves to be a boon for those companies who either are short on time to apply for a traditional loan at a bank or their loan application form has been rejected by a bank. A small business can gain hugely by selling their invoices to a factoring company. Apart from meeting their immediate expenses by using the cash that a factor will pay, a small business should choose invoice factoring for the below mentioned advantages:

  1. Increase in the amount of sales and profits: If you need extra cash in hand to increase sales efforts of your smaller organization, waiting for your client to clear their invoices doesn’t bear any fruit for you. Instead selling your invoices and getting immediate cash could help you beef up your sales activities. It helps you target more potential clients and acquire further business, thus increasing your gross profit.
  2. Cash in hand for expansion: If your company has been showing a great success graph but needs your client to pay their invoices on time so that you can spearhead your expansion plans, then selling your invoices for quick cash seems to be the right idea. You will get at least 70 per cent of the value of the invoices in advance thus you will have sufficient funds to execute your plans to expand and grow your organization.

3. Improved credit rating: Not many entrepreneurs are aware of the fact that invoice factoring or accounts receivable financing helps you increase your credit rating and thus makes you eligible for acquiring loan from a bank at a moderate interest rate. The chances of the rejection of your business’s loan application will significantly if you have a good record of invoice factoring.

4. Increases the efficiency of the management and save their time: If a third party is involved in collecting your bill receivables on your behalf, then you are freeing up the time of your management which often loses significant amount of time in either following up for the payment or its collection. The company management will have more time to concentrate on new deals, operational strategies, production plans or other important functions. Increase in their productivity is the major benefit of invoice factoring.

5. Minimizing potential bad debt: By selling your invoices to a factor and taking advances against them reduces your chances of having bad debts. It is a simple fact. Once you have sold your invoices to a factoring company, it becomes their headache to collect the payment for the client.

About the Author

In 1985, 1st PMF Bancorp was founded as a family run lender providing factoring, but as our clients’ businesses expanded globally.

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Author: Stephen Perl

Stephen Perl

Member since: May 18, 2015
Published articles: 9

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