Often small business owners face the dilemma of pursuing contracts with large corporations only to find that these clients insist on long-term payment plans. You want to accept the work, but at the same time you are concerned with your cash flow in the short term. Here are some tips on how you can keep your small business cash flow strong and steady even if you do business with slow-paying clients.
The Basics of Invoice Factoring
Invoice factoring involves selling your unpaid accounts receivables to a factoring company in exchange for a cash advance. This gives you the working capital to take care of ongoing financial obligations such as employee salaries, rent for your physical locations, and the acquisition of needed supplies and equipment.
The Process of Invoice Factoring
The first step in invoice factoring is to contact the factoring company and fill out an online form that asks for details about your business. The approval process is swift, and once it is complete, you submit your unpaid invoices to the factoring company. You right away receive an advance of up to 95 percent of the amount of the invoice. When your customers pay their bills, the factoring company sends you the balance of the invoice amount minus a factoring fee.
Advantages of Invoice Factoring
Invoice factoring takes care of the cash flow problems associated with taking on slow-paying clients. It provides you with enough funds from pending invoices to handle ongoing daily and weekly expenses. It also assists business growth by helping you afford employee training sessions, new equipment, additional supplies, and dynamic marketing and advertising campaigns. Instead of waiting for upgrades and expansion, you can get the jump on the competition by initiating these improvements right away.
For more advice on improving cash flow through invoice factoring and other aspects of small business financing, get in touch with IRC Commercial Lending.