Running a small business is often an endeavor fraught with a million little headaches. While you might do everything in your power to ensure that you’re doing what’s right by your company, there are plenty of obstacles that can come along and cause you some serious distress. Typically, these matters are almost always financial in nature. Though you likely try to adhere to a budget, there are some factors that are completely outside of your control. Specifically, it can be difficult to predict how and when a client will make a payment for services that you have provided.
Delayed payments from clients can make it very difficult for you to find the funds you need to keep your business running in an efficient manner. If you’re dealing with piles of invoices that have not seen any kind of payment from a client, now is the time to look into a service like AR financing. Take a moment to explore these points and learn more about this option.
How AR Financing Works
There are a few general points that you need to understand before using a service like factoring to your advantage. For one, it can help to know what the service entails. Factoring involves contacting a company to assess the invoices in your possession that have not yet been fulfilled by clients. Qualifying invoices will be purchased from you and the factoring business will provide you with a percentage of the total value of the invoices right away. After this, the company takes on the job of collecting the rest of the debt from your client.
Once the debt has been collected in full, you will receive the difference in what you are owed. Naturally, the factoring business will also take a fee for the provided service. AR financing is an incredibly easy service to understand and it can offer a number of key advantages for you and your small business. Weighing out the pros and cons can help determine if this is an appropriate fit for the needs of your company.
Key Advantages
Though there are several benefits to factoring, the most exciting is the fact that this service makes it a lot easier for you to maintain control over your cash flow. Access to available capital is critical for the success of a small business. Should your clients take too long to pay for services, your capital diminishes. This means it becomes more difficult to take care of the expenses related to operation as well as any opportunities for growth in the near future. What’s more, factoring helps you see the money you are owed.
Those who wonder, “what is invoice factoring?” should also know that the service does not put the borrower into further debt. Since these funds are already owed to you, the lender is providing the factoring funds as an advance. Instead of paying back the money directly, you pay a fee for the service.
Some Disadvantages
While it is a beneficial service, there are some disadvantages to using factoring. For one, you will not receive the full amount that is owed to you. The factoring company will take a fee for the service and in many cases this can be a hefty sum of money. Still, you are paying for the convenience of the cash advance. Also, not all invoices will qualify. To reduce risks, invoice factoring companies usually only accept invoices from trustworthy or well-known clients. Keeping these points in mind can be quite helpful.
When you are dealing with clients who are not paying for services you’ve completed, you need to know what options are in front of you. Factoring your invoices can be an easy and straightforward solution that helps you find stability with your funds. While there are many benefits, it is important to stay mindful of everything that will be expected of you and your business while using this type of financial service. Learn more about AR financing and see how to get started.
