The benefits of invoice factoring cannot be overstated. Most businesses with B2B invoices qualify, and it provides you with an instant injection of working capital that you can use however you wish. However, there are many other benefits to working with a factoring company that doesn’t directly relate to these things. Give us a few minutes, and we’ll walk you through some of the things you probably didn’t realize factoring companies can do for you, including the advantages and disadvantages of non-recourse factoring versus traditional bank loans.
1. Credit Checks to Reduce Bad Debt
One of the primary reasons it’s easy to qualify for invoice factoring, including non-recourse factoring, is that your business isn’t scrutinized the way it is when you apply for a bank loan. This is because the factoring company is more concerned with the entity responsible for paying the invoice – your client. Credit checks are performed to ensure they’re only advancing cash on invoices likely to be paid in full and on time, improving your cash flow and reducing the risk of bad debt.
Small businesses write off up to ten percent of invoices as bad debt, CPA Practice Advisor notes. That means this single service can dramatically increase your profitability and improve cash flow.
2. Collections Services to Reduce Overhead and Save Time
Virtually all financing solutions require your business to repay the money you borrow with fees and interest. Factoring is different because you’re selling the invoices to your factor, and they assume responsibility for collecting the balance.
This is handled in a customer-friendly way, almost like you’re outsourcing your billing. Your customers are happy because they’re getting excellent service, and your business is free from chasing invoices.
More than two-thirds of small businesses spend an average of 14 hours per week on administrative tasks related to collecting invoices, Intuit reports. That’s 728 hours annually that you get back to focus on core tasks and strategy, or can reallocate within your organization when you work with a factoring company.
3. Accounts Receivable Management and Reporting for Enhanced Oversight
It can sometimes be difficult for small businesses to keep track of payments, invoice aging, and other concerns. Late payments create another layer of complexity, especially when trying to predict cash flow and budget.
You get your cash right away with factoring, so forecasting and budgeting is simple. Your factoring company also handles reporting, so you always know which invoices are outstanding and who is paid up. This is a digital service with Viva. You can access your account 24/7 via your personal Customer Account Portal.
4. Industry-Specific Perks to Help Your Business Thrive
Sometimes, factoring companies specialize in specific industries. This typically means they understand your industry more than most and offer tailored solutions to help you run a stronger, more profitable business.
For instance, Viva specializes in several industries, including transportation. Our freight factoring clients can also qualify for fuel discount cards and fuel advances.
5. Additional Forms of Funding to Strengthen Your Business
There’s no such thing as one-size-fits-all business funding. Factoring is no different in this respect. Sometimes, it’s not the best solution for a business, or its needs change as it grows. An experienced factoring company understands this and offers other funding solutions to help ensure the needs of its clients are met regardless. Some examples of alternate funding solutions Viva offers are covered below.
Reverse Factoring
With reverse factoring, the factoring company pays a supplier’s invoice at the request of a business with solid credit. This ensures the supplier is paid promptly, even if it doesn’t have strong credit but gives the business more time to pay.
Asset-Based Lending
In an asset-based lending agreement, your assets serve as collateral on a loan. It’s advantageous to work with a factoring company like Viva that specializes in your industry because we typically understand the value of what you’re bringing to the table more and can offer financing against non-traditional assets, too.
Short-Term Financing
Often, short-term financing is the preferred method when a business needs a working capital injection quicker than a traditional loan can be paid out. The loan amounts are often enough to address equipment purchases and seasonal needs or take on more work but they tend to be smaller than traditional loans. Therefore, the repayment schedule is shorter as well.
Equipment Financing
A business can use equipment financing to lease, buy, repair, and maintain equipment. Traditional lenders do not always offer it because they tend to have difficulty calculating the equipment value for certain industries. However, factoring companies, especially those offering industry-specific expertise, are better positioned to help.
Venture Debt Financing
Whereas most venture capital options involve giving up board seats to a lender, some factoring companies like Viva offer venture debt financing without giving up control.
Quick Pay Programs
Quick pay programs allow you to ensure your team gets paid on time by unlocking the capital in your invoices. For example, Viva offers a Construction Quick Pay Program, which allows general contractors to ensure subcontractors are paid on time even if the project hasn’t paid out yet. The general contractor has total control over which subcontractors are offered quick pay and on which projects. When a subcontractor wants a payment advance through quick pay, the general contractor also gets the final say in whether the request is approved.
Quick pay programs improve supplier relationships and trust. They also help ensure projects are completed on time and that everyone can afford supplies as needed without the general contractor having to dip into his own pocket.
The Benefits of Invoice Factoring
Understanding the advantages and disadvantages of different funding options is important to help you make informed decisions. Unlike bank loans, which often come with a lot of credit requirements and a lengthy approval process, invoice factoring provides quicker access to working capital, making it invaluable for managing cash flow, covering payroll, and maintaining steady business operations without the burden of debt. Specifically, non-recourse factoring offers added security, as businesses are not held liable if their clients fail to pay the receivables. This feature significantly mitigates the risk of bad debt, allowing you to focus on growing your business rather than financial recovery. Moreover, factoring services extend beyond simple cash advances; they offer receivables management, ensuring that your business enjoys steady and predictable cash flow, essential for meeting both short-term needs and long-term goals. With the flexibility to get approved more easily than a traditional line of credit, even businesses with less-than-perfect creditworthiness can leverage invoice factoring to keep their operations running smoothly, proving it to be an essential strategy to keep your business running without going into debt.
Request a Complimentary Factoring Quote
At Viva, we’re proud to support growing businesses and tailor our services to meet your needs. That means you’ll have access to a wealth of services and benefits that aren’t always available through a factoring company. If you’d like to learn more or get started, request a complimentary factoring quote.
- 10 Credit Crunch Business Strategies to Boost Your Resilience - March 21, 2024
- 5 Benefits Factoring Companies Offer Other Than Factoring - February 9, 2024
- Factoring Notice of Assignment (NOA): Everything You Need to Know - January 4, 2024
