For companies across numerous industries, they don’t get paid immediately for their products and services. Often, the client is another company, which is why you’re giving them a credit term. So you’re left with having to wait 30, 60, and in some cases even 90 days before you’re paid in full. But that’s the wait you avoid by factoring accounts receivable.
This is the main advantage of account receivable factoring. In factoring you get most of the money right away, and you get the rest when the customer pays in full.
Here are some ways which may want to use the money you get from factoring:
- Cover payroll. This is a huge benefit, because many small businesses can really fail once they start missing payroll and fail to pay their people on time. Employees then start looking for work elsewhere, and work performance suffers because of morale issues.
In many cases, payroll could have been met had your clients paid right away. And that’s what factoring does. You can then cover payroll so you can keep your people satisfied and working at their best.
- Pay bills. If you have a business, often you have to pay for a lot of things to keep your operations running. You have to cover the rent for the office, and you have to pay for utilities as well. Then of course there’s the monthly payment for all your expensive equipment. You may also need to buy some other equipment on a daily or weekly basis.
If you can’t pay your bills, your business may grind to an absolute standstill. You simply can’t allow that to happen which is often why you need money right away instead of waiting for 30 or 60 days. You have to pay all these bills on time, and with the advance money you get from the factoring companies you can do so with a huge sense of relief.
- Invest in marketing. There’s no point in selling the best products and services in your industry if no one knows you exist at all. It’s not enough that you offer the best. You have to spread word about it, and you need to convince people that you do offer the best. That’s what marketing and advertising is all about.
Competing for customers can be tough, so you can’t relax. That’s why quite a lot of companies use a large chunk of their capital in marketing so that they can get more customers. The more customers you can bring in, the higher your revenue.
- Take advantage of supplier discounts. This is math at its simplest. Sometimes the cost of factoring may be less than what you gain when you take advantage of supplier discounts when you pay them early.
There are many things you can do when you consider factoring accounts receivable. That’s the point of factoring—to help improve your business.