Factoring Basics: How to Best Use it for Your Business

In business, one of the most frustrating moments can be when you’ve got plenty of customers, but no one is paying. Invoice after invoice can make it seem like the business is healthy, but without the proper cash flow, things can start to look pretty bleak. Without the funds to pay employees or buy inventory, you could be at risk of paused business operations, which would only hurt the business further. Luckily, there are options in these sticky situations. Here’s how factoring can benefit your business.

When you’ve got a handful of invoices and trickling cash flow, your options can seem pretty limited. You can inject some of your personal funds into the business, but many business owners have already given everything they have, or close to it, by starting their business. If some other source of funding is unlikely, you can choose a different avenue of financing. If you decide to finance your unpaid invoices, you can be paid almost immediately.

With receivables factoring, you can sell your unpaid invoices for a discounted rate and receive cash almost immediately. The quick turnaround for this process is one of the main benefits for companies in need of cash flow. You also can use this opportunity to avoid falling into further debt. While loans could be another solution, many do not have the time it takes for loans to be processed, approved, and dispersed.

When you receive this cash flow, there is a suggested order you can use to implement your funds. If you’ve struggled to pay your employees, make this a priority. Staff loyalty can be a valuable resource, but it can also be easily broken by missing a pay period. Paying on time can keep up morale and identify you as a capable business owner.

If you have any outstanding taxes, pay these next. You may think that you’re willing to pay the extra fees now and settle up later, but things can take a turn for the worse very quickly. If you don’t want any kind of tax entity sticking their hands in your accounts, communicate as soon as you can. Paying your suppliers should come next, to keep yourself from becoming another unpaid invoice to a company you want to keep in good standing with.

When used efficiently, factoring can be an excellent solution to cash flow issues. It can help you avoid debt while keeping up with your daily operations, so your business can keep going without the added stress.


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