How Can I Use Factoring or Invoice Discounting To Benefit My Business?

 In Invoice Finance

The blanket question here is – suppose you had access to unlimited cash for your business. How would you spend it? Would you be able to achieve something that you are unable to right now, because you don’t have the cash?

Now, stop and visualize actually getting hold of cash and running your business the way you want to. You no longer have to refuse large orders because you don’t have the money to buy raw materials or equipment. You sell your invoices and get your cash in two days, instead of the usual thirty-day (or more) waiting period. You are able to go ahead and accept more orders, larger orders, as you know you can raise the working capital quickly. As business grows, so do the number of invoices. There is a steady inflow of cash. This could become a routine activity for your business if you went ahead and used factoring.

You can explore this further by making a note of your responses to the following points. This will enable you make a proper analysis so that you understand the specific ways in which factoring can benefit your business.

Assessing Your Customers

Make a list of your customers. Now, look at each name and decide which of the invoices are good for factoring. Then, calculate how much money you can raise from each one through factoring. Against each customer name, note the average invoice amount and average volume of business on a monthly basis.

The next step is to consider the consequences of offering thirty-day terms of payment to these customers. Assuming that you can now process huge orders, maintain larger inventories, and get the additional staff you need, what is the volume of business you can add and use for factoring?

Using the Cash Received From Factoring or Invoice Discounting

Once you get the cash from factoring, make a list of how you will use this cash. Also, make note of which specific expenses you would address. Which of these expenses will help improve sales?

Now consider how you can bring down your expenses in future. For most businesses, payroll is a popular way to use funds from factoring. Try to visualize how you would feel about clearing up payroll expenses on time without having to worry about arranging for extra cash.

Changes You Will See in Your Business

You can now try to note three ways in which you see your company changing in a year’s time as a result of dependable, continuous cash flow.

After you have done the above, you will get a good idea of whether you ought to use factoring for your business. It will help you if you chart out a “before factoring” and “after factoring” statement on a sheet of paper. This will enable you assess the value of factoring or invoice discounting for your business.

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