Invoice factoring has been around for a long time, largely because it is simple and effective, so companies keep finding uses for it despite changing markets and technologies for delivering products and services. Deciding whether it’s the right way to optimize your working capital means weighing its benefits and application requirements against your other options, and the conclusion is highly situational, so you may find sometimes it is a good call and other times you have better options.

Invoices With Long Repayment Windows

The longer the repayment window you offer customers, the more likely it is you would benefit from factoring. Financing companies that offer this service look for invoices that are not yet late, and they also want a high likelihood of on-time payment from most of your customers. If you have short repayment windows, you may not have enough invoices that are still on time to finance the capital you want. If you operate on invoice plus thirty or plus ninety, however, you usually have a stack of them.

Streamlining Your Bookkeeping

Some businesses opt to use this service as a method of outsourcing receivables and normalizing pay dates, in which case the length of the repayment window does not matter, invoices are typically factored in immediately as an organizational choice. In some cases, this outsourcing is more valuable than the cost of factoring, so owner-operators in many industries tend to use this option as a way of minimizing their own bookkeeping time.

If your business currently spends a lot of labor time on bookkeeping proportional to what you spend on your core operation, you might have a small enough staff to benefit from the administrative benefits of factoring.

Keep Cash Flowing Evenly

The third class of company that uses this service regularly and to great benefit? Companies with stringent cash flow management. If you need to make sure you always have cash on hand for outgoing obligations that will not interfere with your credit score or loan application processes, then this is the option for you. It is not a debt, so it does not appear on your credit report. That means you can access working capital on demand without affecting your business credit score, and that’s a benefit that a lot of businesses could cash in on.

If your company uses invoice billing and your operation would benefit in any of these ways, it’s time to call us and ask about factoring.