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Invoice factoring Is a Magic Bullet for Small Business’ Growth

Author: Stephen Perl
by Stephen Perl
Posted: Nov 29, 2014

Invoice factoring is an efficient means in accelerating cash flow on invoices that are due back to the business. The process of getting paid on invoices is usually a long one for a small business, and the time required for this process is so consuming that it creates a big problem for the business. In this article, a brief understanding will be generated about the service requirement for Invoice factoring, going through which one can easily understand the need and benefit of the service.

Problems in the field

Time is the most important factor in this area and especially for the small business. The smaller businesses usually have clients who work on credit terms for their invoices. But the time of paying back which can be 30-90 days can be detrimental to that the business. The client goes with the mentality that they need to wait for the their client to pay their invoices because they are afraid of losing the client. Thus, the money drains out of the business and the business faces a cash flow situation, where the capital outside of the business becomes equal to the capital invested. In a situation like that, the business can only get into a good position, if the money that is outside was made available.

How to correct this cash flow problem?

In a situation where cash is tied up in invoices from clients which is the real world, then what is the solution? Through a service called Invoice factoring, the invoices that are outstanding could be used as a solution. Within 24 hours, a factoring company could provide cash flow that returns the funds invested in the client’s receivables. These fundscan again be used to further production support or capital support. The factoring houses charge a small percentage of the invoice amount and that percentage value is much less when compared to the loss of business, the business would have to face, if the money would have been returned after a month or two.

Benefit of Invoice factoring

Invoice factoring helps the small business by many ways. Firstly the loss in the business due to draining out of the capital can be restrained. Secondly the hazard one has to face to run after the clients to get the invoice amount repaid is reduced. Thirdly the time that is lost in getting the invoice amount back will be controlled and fourthly, getting back the entire amount would help the business to go for new deals or orders with that money and also within that stipulated time. Finally, the business will look much stronger and will provide greater assurances in its strength to its client base.

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Author: Stephen Perl

Stephen Perl

Member since: Sep 24, 2014
Published articles: 21

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