Invoice Factoring and Opportunity Cost
The longer customer invoices go unpaid, the less working capital is available to a business. Limited access to working capital equates to limited means to take advantage of opportunities to grow.
These missed opportunities are what is referred to as opportunity cost. Simply, it is the "cost" a business pays by having their working capital tied up in accounts receivable. When this cash becomes readily available, it allows the business to grow more quickly.
Lost opportunities (or opportunity cost) includes all the things a company can’t do because cash flow doesn’t permit it. This could include:
Having to wait to take on new business
Being limited in the size of orders a company can fulfill
Being limited in the number of customers a business can serve
Being unable to take advantage of vendors’ early-pay discounts
Being unable to extend better payment terms to customers as a competitive advantage
Inability to pivot quickly to take advantage of emerging opportunities
Stop Stressing. Start Growing
Get Access to Funds Quickly Once you’ve decided to factor your invoices, you’ll be able to receive financing quite quickly. Oftentimes, money is available within a week following the signing of a factoring agreement. If your company is in a severe cash crunch, invoice factoring can help resolve the issue and get you access to the money you need.
Money Can Be Used for Any Business Purpose Traditional business loans often restrict how funding can be used. For example, an equipment financing loan is usually only available for equipment purchases, and a commercial loan may be constrained to purchasing company property. Business factoring for small businesses allows you to use the money for any purpose.
Limit Your Collections Efforts
Under an invoice factoring agreement, the factor becomes responsible for collecting unpaid bills, not you. This frees up you and your team to dedicate time to other essential activities, such as building sales or developing new products. You’ll no longer need to follow up with customers who are late with their payments or constantly review your aging receivables.