When Factoring Should Be Used
A consistent cash flow allows a business to continue functioning, but there are times when businesses have to scramble to get the money they need. During low cash flow periods, businesses might want to take selling factors into consideration.
In business terminology, factoring is an option for companies to receive money immediately as a result of low cash flow. This low cash flow is usually a result of clients having yet to pay for their products or services. This leaves companies to have outstanding invoices, or bills, but what they really need is cash in order to continue growing their businesses. In order to avoid a serious lack of growth, many businesses use factors, which enable companies to receive the money they need to allow business operations to continue. How it works is businesses sell their client invoices to a financing company and the money is becomes quickly available. Although not recommended for a long-term solution, there are a few good reasons for considering factoring for your own business needs:
Overall Business Growth
If you’re looking to grow your business but struggling from lack of on-time invoices, factoring resolves that dilemma by providing the money you need. A business’ growth depends on a consistent cash flow, cash revenue in order to allow business operations to continue running, thus being able to produce a product or deliver a service. When you’re low on funds, you’re low on allowing your business to grow, but by receiving money through the selling of accounts receivable, it becomes possible to prevent stalls in company growth.
Selling customer invoices in order to fulfill future customer orders is one circumstance in which selling factors is a great option. Having cash is necessary in order to acquire the tools and materials to allow business production to take place. Since some customer orders are larger than others, it’s important to have the means to fulfill those orders, and if you’re low on funds, selling invoices or accounts receivable allows you to acquire the cash necessary to complete such orders.
During Emergency Situations
Of course, businesses are also prone to casualties that are completely out of their control and these include fluctuations in the market, natural disasters and other unforeseen setbacks. During these high emergency circumstances, using factors is a reliable back-up solution for any business to use so that your business doesn’t suffer at least in operations or moving forward.
These are the main upsides that factoring provides a business struggling in its cash flow. It’s a helpful method to fall back on when normal business operations don’t produce the necessary results, as long as it’s not relied upon for daily business growth, it’s a helpful tool to have at your disposal.