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How does it work?

Invoice factoring is a way that you can get most of the money for your invoices immediately. It is a type of invoice finance. A company will buy your invoices and then collect payment from your customers.

It means selling part or all of your accounts receivable. You sell this to a company who pays you up front for the invoices. They Basically, you sell your invoices to a company. You give the goods or service to people in the normal way. The company then pays you up to 80-90% of what you are owed for that invoice after they check that it is right. Your customers then pay the company directly and the company chases the payment if necessary.

When should your company use it?

Your company should use invoice factoring when you routinely have a lot of invoices that are overdue. You can then take the money that they owe to you and use it for other things. For example, if your company sells to people on 30-day payment terms, but some people pay early while others may go over 30 days, invoice factoring will help you get the money owed to your company faster.

When you have a lot of invoices and your cash flow is not good, invoice factoring can help you get the money. Let’s say that your company sells on 30-day payment terms. Some people pay on time while some might not. You can get the cash from those who do not pay in time by using invoice factoring.

You could use that money to:

Bridge short-term expenses

Repay a loan

Take advantage of seasonal business opportunities

Or for any reason for which cash flow might otherwise be a constraint

Take Advantage

Invoice factoring is a good way to get more cash for your business. You can pay the bulk of your invoices sooner rather than waiting for the money to come in. This helps with business planning and forecasting because you have an idea of how much money will be coming in at what time. Invoice factoring also allows you to take advantage of opportunities that might otherwise be unaffordable.

It is cheaper and easier to get than a bank loan. It is good for short-term needs because it helps with debt management and does not take much work. Invoice factoring also helps with the hassle of dealing with a lot of money that could be difficult to manage or store.

Invoice factoring services will reduce your business overheads. There are fees, but they might be less than the cost of hiring a credit control staff. Invoice factoring could also make people in your accounts department happier because it can be stressful to chase payments.

In conclusion, Invoice factoring will help your business stay healthy – as long as you use this wisely.

How Much Money Can You Borrow? – Here is a simple Guide

Photo by Quinton Coetzee on Unsplash

If you’re an established business and are focused on growth, you may be searching for a business loan to help you accomplish your goals. But before you apply for a loan, you’ll need to determine the best amount to ask for.

If you borrow too little, you may not accomplish your goals, and if you borrow too much it could be a financial burden.

So how do you establish the “correct” amount when seeking out loans for businesses?

Consider the Variables

The answer is simple and yet complicated. There is no right, “blanket” amount for a business loan that will work for every business owner. Meaning there’s no perfect equation that tells you how much to borrow; it’s all up to your unique business needs.

To determine the right amount, it’s helpful to consider a host of factors, including:

What type of business it is
Your business requirements
How are you going to use the money
What expenses you will incurr

So how do you make that kind of decision without years of experience crunching numbers and assessing risk?

Borrowing More than You Need

You may be tempted to borrow a large amount of cash; overshooting your expansion budget (or whatever business project you’re looking to fund with a loan). That way, even if expenses end up being higher than projected, you still have enough cash to cover it.

But keep in mind that with a higher loan, the associated fees may be higher, too. If you borrow more than you can afford to repay, you may find yourself in an endless cycle of debt.

When you take out a loan responsibly, and for the right amount, a loan is an incredible business asset that offers you opportunity, growth, and success. It shouldn’t be a financial burden.

Borrowing Less than You Need

At the same time, if you’re too risk-averse, you may end up borrowing less money than you need. With this scenario, you could find yourself short on cash while upgrading equipment or planning a location move, and unable to carry out your plan as you intended. And, consequently, you could be left repaying a loan that didn’t benefit you to the fullest extent.

As you can see, neither borrowing high nor borrowing low is a safe strategy; you need to borrow the right amount for your needs, no more or less.

How to Borrow the Right Amount

If you don’t know how much capital you need, then you may want to consider enlisting the help of finance professionals to determine a game plan.

And, what better finance professional than your very own lending partner? You likely already have a relationship with them (or intend to begin one), and they know the intimate details of loan finances.

Finding the Right Lending Partner for Your Needs

Successful small business owners must find the right lending solution for their needs by doing their homework. Often business owners contact lenders because they need a loan fast.

They know what they want to accomplish with the money, but most of the time they don’t have a clear idea of how much loan capital they really need to accomplish their objectives.

Hence, speak with as many lenders as you can and share the details of your business needs.

Only then you will have a clear idea of how much you can repay realistically without stressing your finances or stretching the limits of what your business model can accomplish.

If you’re interested in discussing your financing options, eMail Us today!

The information shared here is intended to be used for informational purposes only.

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Factoring is a Very Useful Business Tool – Use It!