Have you ever had to turn down work because you’re unprepared for the upfront costs? It’s a frustrating scenario that plays out all too often and is one of the few business challenges few are prepared to face – or even realize exists – until it actually happens. On this page, we’ll walk you through why this happens, options to address it, and why invoice factoring for large orders and contracts is often the ideal solution.
Landing Large Orders and Contracts is a Problem for Many Businesses
Landing large orders or contracts is precisely what most businesses strive for. It’s a sign that you’re doing something right. But the reality is that the bigger the opportunity, the bigger the challenge it can create when it comes to cash flow. If you can’t manage the upfront costs, you may not be able to take advantage of the opportunity. Two in five small businesses have lost potential business opportunities for exactly this reason, per Xero surveys.
Traditional Business Financing Options Cannot Always Bridge the Gap
Many businesses turn to traditional lending options such as loans and lines of credit to take advantage of these opportunities. However, they miss the mark for many reasons:
- High Denials: More than one in five applicants is completely denied funding, according to the latest Small Business Credit Survey.
- Insufficient Funding: Around 28 percent of applicants only receive partial funding, survey results show. This leaves a gap that businesses must fill through other means.
- Red Tape: Traditional lending has a labor-intensive approval process and businesses must jump through a number of hoops to get approved.
- Lengthy Turnaround: Getting approved and receiving payment can take weeks or months, which isn’t fast enough to seize most opportunities.
- Debt: Nearly 20 percent of businesses that don’t apply for funding in any given year avoid it, not because they don’t need the cash, but because they’re afraid to take on debt.
Factoring vs. Traditional Financing: What’s Right for Your Business?
For businesses handling large orders or contracts, deciding between factoring and traditional financing options like loans is crucial. Factoring is a financing solution that provides immediate cash flow by selling invoices rather than borrowing money. This avoids taking on debt, as is common with loans, and offers faster approval times. With factoring, businesses can access working capital in as little as 24-48 hours, while traditional loans often come with longer approval processes.
One key advantage of factoring is the ability to choose which invoices to factor, meaning businesses can maintain control over which projects they finance. In contrast, traditional financing involves committing to set repayment schedules, often adding debt to the company’s liabilities.
Non-recourse factoring also offers protection against customer non-payment, which is not available with traditional financing. This makes factoring a safer option for businesses dealing with high-value contracts or government entities, where payment cycles can be long. Overall, factoring offers more flexibility, fewer risks, and immediate access to cash compared to traditional financing options, making it ideal for businesses looking to manage large contracts without incurring additional debt.
Factoring Helps Even When Traditional Financing Options Don’t
Invoice factoring is a unique funding solution in which your business sells its unpaid invoices to an invoice factoring company like Viva Capital in exchange for immediate payment. You receive most of the value of the invoice right away, then receive the remaining sum minus a small factoring fee when Viva collects payment from your client.
Enhance Cash Flow with Asset-Based Lending
In addition to factoring, asset-based lending for small businesses provides another valuable tool for managing large orders and contracts. By leveraging assets like inventory, equipment, or accounts receivable, businesses can access immediate funding without taking on traditional debt. This approach offers flexibility and stability, empowering businesses to seize opportunities and maintain financial resilience.
How the Invoice Factoring Process Works for Small and Construction Businesses
For small businesses and those in the construction industry, maintaining steady cash flow while handling large projects can be challenging. This is where factoring services become a powerful tool. By selling outstanding invoices to a factoring company, businesses receive immediate access to working capital without waiting months for customer payments. This flexibility allows them to take on new projects, cover ongoing expenses, and manage payroll more efficiently.
Construction invoice factoring works particularly well in an industry where businesses often deal with staggered payments or long-term contracts. By factoring, construction businesses can avoid cash flow issues that come with waiting for clients to pay the invoice. The factoring process is simple: a business sells its invoice to the factoring company, receives a portion of the invoice amount upfront, and then the customer pays the invoice directly to the factoring company.
Unlike loans, factoring allows businesses to access cash without taking on additional debt or compromising their financial health. With easy approval processes and flexibility in choosing which invoices to factor, this solution empowers businesses to grow and handle new opportunities without worrying about cash flow constraints.
Invoice Factoring for Large Orders and Contracts: A Recipe for Success
Factoring supports business growth in many ways, but it can be especially helpful when businesses need a quick cash injection to take on a large order or contract. Let’s take a quick look at some of the mechanisms behind this.
Easy Approval
Whereas loans and lines of credit have lengthy approval processes and rigid criteria, most businesses with creditworthy clients can get approved for factoring. Moreover, you can be approved in as little as eight hours when you apply factoring with Viva Capital.
Immediate Capital
Factoring provides your business with an instant injection of working capital. In most cases, cash is available in your account within two business days. At Viva, we also offer same-day payments. This allows you to accept work with confidence, knowing you have the cash to cover upfront expenses in your account right away.
Financial Stability
Factoring provides more predictable cash flow, allowing you to take on larger contracts confidently, knowing you won’t be stuck waiting for payment to come through.
Risk Reduction
We check the creditworthiness of your clients before we begin factoring, so you know exactly how much trade credit you can extend without exposing your business to unnecessary risk. This can also provide peace of mind when accepting larger contracts.
Flexibility
Factoring is scalable. Whether you’re handling small or large orders, factoring adjusts to your cash flow needs without requiring long-term commitments or minimums.
No Debt
Since factoring is not a loan, it doesn’t add to your company’s liabilities or affect your credit score, which preserves your ability to borrow in the future as needed. It can also make it easier for you to make payments on your existing debt, which can boost your credit score to make it easier to borrow or help you get a better rate in the future.
Overcoming Operational Hurdles and Building Business Resilience
Factoring helps with maximizing efficiency and strengthening business resilience by providing immediate cash flow and taking the burden of collections off your shoulders. When you factor invoices, you can quickly assess the funds you need to cover operational costs like inventory or payroll so you can fulfill orders without waiting for customer payments. This steady cash flow helps you pay suppliers on time, maintain good relationships, and even negotiate better terms. Plus, with the factoring company handling collections, you’re free to focus on core activities like production and customer service rather than chasing invoices.
Factoring also strengthens business resilience by offering a buffer against payment delays, ensuring you always have access to the cash you need to keep things running smoothly. Because factoring creates liquidity without adding debt, it keeps your balance sheet clean and allows you to navigate economic downturns or unexpected challenges with more financial flexibility. This combination of improved cash flow, outsourced collections, and debt-free liquidity ensures that factoring supports both your day-to-day efficiency and long-term stability. For this reason, many businesses find it imperative when transforming business management strategies or as part of moving to a resilient business model.
Construction Factoring: The Key to Managing Project Costs
Managing large projects in the construction industry often means handling significant upfront costs for materials and labor while waiting for long-term payments. Construction factoring addresses this issue by providing immediate liquidity through the sale of outstanding invoices. Businesses can receive an advance from the factoring company, allowing them to meet financial obligations, pay suppliers on time, and keep projects moving forward.
With construction invoice factoring, businesses don’t need to rely on traditional loans or credit lines that add debt to the balance sheet. Instead, factoring companies offer tailored services to the construction sector, ensuring steady cash flow and enabling businesses to take on more contracts confidently. Government contracts, which are common in construction, can also be factored, providing quick access to working capital.
Additionally, non-recourse factoring is available for businesses concerned about customer non-payment. This protects construction companies by shifting the risk of non-payment to the factoring company. As a result, factoring becomes an essential strategy for maintaining financial stability and fueling growth in the construction sector.
Get Started with Invoice Factoring for Large Orders and Contracts
Whether you’re actively searching for a way to cover the costs associated with a large order or contract you’ve already been offered, or you want to make sure you’re ready to seize the next opportunity that comes your way, factoring can help. To kickstart your approval, request a complimentary factoring quote from Viva.
- Overcome Loan Rejection: Next Steps for Business Financing - October 21, 2024
- Factoring: A Strategy for Managing Large Orders & Contracts - August 28, 2024
- How Factoring Supports Small Businesses with Limited Credit - June 27, 2024
