Many companies now make use of invoice financing, and yours may wish to do the same. This financing option has been increasing in popularity for years now as it provides an alternative to traditional loans, and there are many benefits associated with accounts receivable financing. However, this doesn't mean every company should make use of this type of funding. Before you make the decision as to whether you should go this route, you need answers to some basic questions.
Will This Help With My Cash Flow?
The question you need to ask is how long it takes to be paid on your invoices. If you find that you cannot wait this amount of time, accounts receivable financing will likely be the right move for you. The funds you obtain through the financing company may be used to pay your operational expenses, such as utilities or payroll. If this isn't where your cash flow problem lies, you may need to consider other options.
Do My Clients Pay In a Timely Manner?
This is what the financing company actually looks at, rather than the creditworthiness of your business. If your customers aren't paying in a timely manner, you may find that no financing company will work with you. If the companies you work with don't have good commercial credit, you must look elsewhere. Keep this in mind when comparing financing options.
How Will My Clients Be Impacted?
This varies by the company that will be factoring invoices. Some companies contact the clients before they work with you because they need to verify the invoices being purchased. If one or more of your clients disagree with their invoice, this could lead to you being denied. You must speak with each company to determine their verification process.
In addition, some companies choose to contact your client directly when an invoice goes past due. Others choose to turn the invoice over to you and freight factoring companies allow you to contact the client. You need to speak to each provider to determine how they handle this task and how it will affect your clients.
Will I Qualify For This Financing?
You need to see if you have any liens on your invoices. A prior bank loan may lead to this type of lien and past due taxes will do the same. If you have a lawsuit pending, your invoices may already have a lien also. Be sure to check this before you choose this financing option, as a lien could lead to you being denied.
Invoice financing benefits many companies, yet others find they must look to alternative financing solutions. You know your company better than anyone else. Keep the above information in mind when comparing financing options, so you can make a decision that helps your company move forward in every way.