News Article

Forget the Bad Press – Invoice Factoring can help to Grow your Business

Factoring is a “double-edged sword” in the world of business. It is still given bad press by people who do not understand it; conversely, it has become a mainstream source of finance (and added-value service) as traditional bank facilities have become more difficult to source. Whether you love factoring or you hate it, in simple terms is has become a cost-effective, accessible and reliable way to fund your business.

Invoice finance has developed considerably over the last five years and, more recently, has become much more cost-effective. With invoice factoring, a business can:

  • Meet wage and salary obligations on time and in full.
  • Pay suppliers on time (which, in turn, improves their own credit rating) and even negotiate discounts for early payment.
  • Have ready cash on hand to support day-to-day working capital needs, releasing precious management time to focus on strategic issues.

When a business begins its search for additional working capital, it needs to have a realistic assessment of what options are available, its needs and what it may qualify for. Given this stark yet necessary assessment, many businesses find themselves with few choices.

If a business determines that the most accessible and flexible form of funding can be obtained through its sales ledger, then the shrewdest thing a business owner can do is to become more familiar with factoring and determine its strengths and weaknesses. A comprehensive understanding of factoring will lead a business owner to consider how a reliable cash flow anchored by invoice factoring can allow a business to grow.

Invoice Factoring Is Accessible to a Variety of Businesses

One of the great things about invoice factoring is that it can be utilised by a wide variety of businesses to solve a range of problems. In many cases, invoice factoring is the only real option for businesses that have fallen upon hard times. Instead of hoping that the bank will save your business you should look at your outstanding sales ledger (one of your most liquid assets) for the cash you need.

Invoice factoring can be used by:

  • Start-ups
  • Businesses experiencing rapid growth
  • Businesses faced with a re-structuring technique
  • Businesses that just want to improve cash flow
  • Businesses looking to improve leverage

Factoring can help out in emergency situations, but it should also be considered as a valuable tool for businesses that are not experiencing financial problems. If you use factoring to turn your invoices into cash before your business starts to see economic challenges, then you are in a better position to avoid problems in the future. It is a smart move for many businesses.

A business can utilise invoice factoring when:

  • It has a negative tangible net worth, which makes traditional lending difficult.
  • It is consistently experiencing operating losses due to a constrained cash flow.
  • It has limited equity.
  • It has a highly leveraged balance sheet or stressed creditor position.
  • The extension of credit terms stretches cash resources.

Factoring services from a reliable financial organisation, either a bank division or specialist independent, have their place in any kind of businesses. If your business has weak credit and cannot get the funding it needs to meet its obligations, then invoice factoring may be a viable solution.

Factoring Has Evolved

Invoice factoring, as with any financial service, has evolved over the years to better meet the needs of clients and market conditions. It was not that long ago that costs made the vehicle prohibitive to prospective clients with low margins. But a stable and reputable factoring organisation can now offer competitive rates that make factoring a realistic and sustainable option.

Technology has also helped to improve the level of service offered by invoice factoring companies. Thanks to sophisticated Internet programs, a factoring company can now appear to be a seamless extension of your business to your customers and your employees.

Factoring companies have also come to realise that they need to understand a client’s business before they can help that client succeed. It has become necessary for factoring companies to become experts in multiple industries and understand the financial challenges that their clients face. The sensitivity to the needs of each client has drastically improved, and so has the ability for factoring companies to put together customised plans that fit the specific needs of each customer. Many factors have focused on industry niches (for example recruitment and sub-contract construction) and have excelled in that space.

Factoring Has the Benefits Entrepreneurs Need

Since invoice factoring is based on your outstanding invoices, your funding line can grow along with your business. The best part is that you never have to worry about whether or not you qualify for an increase in funding line, because those funds are being generated by your growing sales ledger.

Entrepreneurs enjoy several benefits when they utilise invoice factoring. Some of the more important benefits include:

  • Equity preservation.
  • True access to reliable funds, with no strings.
  • Increased independence to run your business as you see fit.
  • Professional back office support (covering credit management and cash collection).
  • Quality management reporting.

Factoring Is More than Just Cash Flow

Factoring is much more than just a way to manage cash flow and receivables.

  • When your business is able to sustain its operations utilising a reliable cash flow, then that offers valuable peace of mind for you and your employees. Instead of always looking over your shoulder to see what kinds of overdue bills could be coming to ruin your finances, you can look ahead towards the future with confidence.
  • Unless your company deals in receivables and improving cash flow, then spending a lot of time worrying about your cash situation is a waste of core resources. If your company manufacturers clothing, then you are much better served by focusing your efforts on design than collecting overdue debts. Factoring allows you to get back to your fundamental competencies and invest time and resources into those activities that made your business successful in the first place.
  • With factoring, your company has a win-win relationship with every aspect of your operation. Your company constantly has the operating capital it needs to pay suppliers, meet payroll, and take care of daily operating expenses. You are happy, your employees are happy and all of your external business relationships are happy.

Make Factoring a Part of Your Business

Every business needs a strong financial plan in order to be successful. But the problem with financial planning is that it counts on your customers paying their bills on time, which is not a reality of business.

Invoice factoring helps to give your business a clear plan for success by creating a sustainable cash flow utilising your sales ledger. When you can pay your bills, you are preserving your credit and enhancing the future of your organisation.

Forget the bad press on invoice factorin; there is no denying its value to your business. You had a plan for starting your business, but you may find that sustaining that plan is much more challenging than you expected. Factoring eliminates the challenge and allows you to follow your original business plan to success.

Contact Avanti to see how we can help your business today. Call us on 0113 457 5853 or

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