Factoring and Invoice Discounting for Small Businesses

factoring and invoice discounting small business

Six out of ten small businesses battle with cash flow problems on a routine basis, according to Forbes Magazine.

Yet, cash flow is one of the most critical aspects for the success of a business.

If your small business has this issue, you should evaluate factoring and invoice discounting. These are two different services, yet they are very similar, and both offer the same results.

You can use these services to improve your company's cash flow, and here are several facts about factoring and invoice discounting that you should know.

Why Poor Cash Flow Is Such a Big Problem to Have

Poor cash flow is one of the worst problems your small business can have. Poor cash flow refers to having more money going out than coming in, and as you can imagine, this is not a good place for a business.

When you have poor cash flow, you may not have enough cash on hand to pay your regular expenses.

For example, you might not be able to meet your payroll demands for the week. You might not have enough money to pay your loan payments, utilities, or invoices.

Not having money to pay these things could put you in a precarious place.

How Factoring and Invoice Discounting Work

One of the reasons that companies end up with poor cash flow is not because they are not generating enough revenue. It is instead because they offer credit accounts and are not collecting the money fast enough.

If you're in this boat, turning to factoring and invoice discounting can make a big difference.

These services provide a way to get cash in advance for money that people owe you. You turn in your invoices to the factoring company, and they give you cash for them.

You do not have to repay the money to the factoring company. Instead, they receive payment from your customers when they pay their balances.

The main difference between factoring and invoice discounting is the way the company collects the money.

With factoring, the factoring company takes over the accounts and pursues collection themselves. Through invoice discounting, you continue managing your accounts and forward the money to the factoring company when you receive it.

The Benefits These Services Provide

Utilizing these services offers an efficient way for you to keep positive cash flow in your business.

If you're wondering how invoice finance can help your business ride through the waves, just think about how much less stress you could have if you had a positive cash flow all the time.

You'll have money to pay all your bills through these services. You will be able to avoid late payments and fees, and you can protect your company's credit. These are just a few benefits of factoring and invoice discounting.

Ways to Learn More

Managing the cash flow of your business should be one of your top priorities as cash flow affects every aspect of your operations.

Are you interested in learning more about factoring and invoice discounting for business? If so, look at the Finance section of our Bootstrap Business Blog. We have a lot of informative articles about cash flow, financial management, and much more.

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