Cash flow is vital for every business. It is important to have timely payments made on billed invoices in order to continue to pay all the expenses that help to keep the business in operation. When customers fail to make their payments promptly the business will eventually begin to suffer from a negative cash flow. This leads to a lot of expensive and potentially damaging problems.
When a business is struggling due to a large amount of uncollected receivables there may seem to be few solutions. One of the most important invoicing insights a business owner can have is to realize that their unpaid invoices do have value. It is possible to benefit from this value in a number of ways. Selling the invoices outright frees up the company owner to no longer have to worry about collecting the balance. Invoice factoring is the process of selling the invoice to a third-party. They will attempt collection for themselves and give the business cash they can immediately put to use.
A more cost-effective answer is invoice financing. This is usually more financially beneficial to the company because they keep their invoices and receive a loan based on their value. They pay back the loan over time and still have the ability to collect the balance from their clients. How much the loan costs the business will depend on their credit score, how quickly the loan is paid back and how much is borrowed. Many companies rely on these types of solutions until they establish a good emergency fund. However, it is not unusual for even large, successful companies to need assistance from invoicing loans when they are in the middle of a large project. If used wisely both solutions help to keep small businesses from getting too far behind to make a recovery.