WHY FACTORING | Webb Capital Advisors

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.

Build Your Company’s Credit While invoice factoring doesn’t enhance your company’s credit directly, it does serve to help you with your working capital. You can make sure your vendors are paid on time by having the funding you need. In addition, most invoice funding companies don’t place limitations on companies seeking to obtain debt financing. This gives you the flexibility to get additional funding in the future if you need it.

Reduced Risk of Unpaid Invoices It can be frustrating to sell a well-developed good or service to a customer, only to have them not pay you. When you choose to develop a relationship with an invoice factoring company, in most cases, they will be involved in the approval of new customers. Rigorous checks will be conducted to prevent bad apples from souring your revenue. This helps to eliminate the chances of bad customer debt.

No Business Debt Since factoring isn’t a loan, you’re not taking on debt that you’ll need to repay over time. The customers you have are responsible for paying their invoices, not you. You are simply benefiting from a quicker payout on their invoices. This means that your balance sheet will show limited liabilities (unless you’ve taken on a prior loan), which can benefit new companies. There’s also no personal guarantee required.

More Time to Focus on Your Business There’s the old saying that it’s better to work on your business, not in it. Because you’re allowing another company to completely take over your outstanding invoice, invoice factoring helps to give you the extra time to focus on your business, rather than chasing down payment from a client.

Imagine what you could do without cash flow headaches

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