10 Businesses Which Should Utilize Invoice Factoring

Financial flexibility is one of the most essential factors that help your business progress. To match the growing financial needs, you need to have steady cash flow. You may have regular customers but not all pay on time and that is no reason for you to make your suppliers wait. To honor your bills and purchase raw materials to keep your production unit on their feet, you need to have cash flow and this is when it may be right for you to consider using invoice factoring. While invoice financing may not suit all, here is a list of 10 businesses, which could use invoice factoring to their advantage.

1. Start Ups

Start up companies generally find it difficult to generate funds as acquiring bank loans is not quite easy for those without a proven financial history. And it is no good to go for loans with interest rates that may eat up the margin. Invoice factoring is just the right solution for them.

2. Growing Companies

For companies that are progressing but lack the resources to accelerate their speed, invoice financing is the way to go. To prevent turning down contracts owing to lack of funds can be avoided.

3. Companies without Bank Support

Availing bank loans has not been easy for some companies. When banks turn down the loan application, the best option would be to use invoices to get the funds required to run the business smoothly.

4. Manufacturing Units

Companies that manufacture products can make use of steady flow of cash. If you happen to be manufacturing products that have a very competitive market, you may need to give your clients a generous time of at least a month or two to make their payment, just to ensure that they do not favor your competitors over you. Invoice factoring should come in handy under these circumstances.

5. Wholesalers 

The margin is always not impressive in wholesale business as the focus is on selling more thereby compensating for the minimal margin. With low margin and more time given to the retailers to repay, wholesalers can do with alternate source of cash to take care of their business needs. Using the invoices raised by them to generate funds is just the right option.

6. Seasons-Influenced Businesses

Not all businesses have a smooth run throughout the year. Many businesses experience fluctuations corresponding to seasonal changes, which could be related to weather or vacation. Such businesses do not enjoy the favor of banks and hence for funds to manage their business, they can rely on their invoices.

7. Service Industries

Service providers are definitely the right businesses to use invoice factoring. The services may be technical or may involve offering domestic services such as cleaning households on a contract basis. Here, the need to pay workers on time is essential so that the contract is not lost. Service industries get paid on a monthly basis if they are on a regular contract or they are paid per job basis. Either way, to manage payroll needs and other expenses to ensure smooth flow of work, invoice financing would be very helpful.

8. Businesses That Need A Good Credit Score

Having a good credit history goes a long way in running a business. A good credit score helps while you apply for a bank loan. Hence, it would be best to make payments to your creditors on time. With no debts, the credit score is going to be really impressive.

9. Businesses That Enjoy Supplier Discounts

Some suppliers offer a good discount for businesses that pay them within a specified period. Such businesses can use invoice factoring to avail the discounts offered by suppliers.

10. Companies In Need Of Working Capital

Many small and mid-sized firms and at times even big companies face financial crisis when they are in need to raise working capital to acquire new machinery or to purchase bulk products for their manufacturing units. Instead of looking for a loan, which comes with an interest to pay, it would be best to use account receivables to generate funds.

Though the above mentioned businesses can make use of invoice factoring, it is best suggested to evaluate the situation before you use your invoice to have a steady cash flow. Consider the pros and cons of the current position and make a wise move. The brighter side to invoice factoring is that the funds you raise is not a loan but your money which you get in advance with a small percentage going to the firm that does invoice factoring for you.