Small businesses have the same financial obligations as larger ones with fewer resources to meet them. Between payroll, rent, utilities, inventory, and other typical expenses, it’s common for cash flow to dry up for weeks or months at a time. Sadly, some small business owners choose to close during challenging times rather than explore financing options available to them. Invoice factoring is one such option.
What is Invoice Factoring?
When you factor an invoice, it means that you sell it for the face value to a third-party organization. That company forwards your business a percentage of the invoice value, less its fees and any amount it puts into reserves until your customer pays. This releases you from the responsibility of collecting on the invoice later. Although you will pay interest in exercising this option, it can give you a much-needed cash flow boost that allows you to continue operations. It’s just a matter of finding the right factoring company.
Invest Time in Research and Ask Appropriate Questions
Finding several factoring companies to consider is as easy as asking your business connections for recommendations or doing an online search. Before agreeing to do business with a new factor, ask these questions to help you select the best one:
- What experience does your company have with my industry?
- Do you offer any support services?
- What are your conditions, including fees and terms?
- Can you supply professional references?
- What can I expect from the application process?
- What happens if my customer defaults on the invoice?
- Will you accept a single invoice, or must I factor all of them?
- Can you explain your factoring options in more detail?
Small business financing should never be a one-size-fits-all solution. We encourage you to evaluate the answers to these questions carefully and determine which company you feel most comfortable with buying your unpaid invoices.
Prime Wealth Development would appreciate the opportunity to be your new factoring company, and we’re happy to answer these questions and more. Please contact us today to set up your initial consultation.