Invoice factoring is more than just a way to unlock the cash tied up in your accounts receivable (AR). When you add factoring to your financial toolkit, your business could see smoother operations, cost savings, enhanced creditworthiness, and more.

In this post, we’ll cover some of the benefits of invoice factoring that are often overlooked.  

1. Improve business resilience 

Whether used alone or in tandem with traditional loans and lines of credit, invoice factoring can help a business become more financially resilient in two important ways.

Cash when you need it. Some factoring companies offer flexible contracts that allow you to choose which invoices you want to factor and how long you want to keep factoring invoices. This lets you tailor your financing options to your specific needs and objectives while minimizing financing costs, especially when compared to more expensive, rigid financing alternatives such as online loans and MCAs.

Cash for what you need. Loans are restricted by covenants that limit the way you can spend the cash. When you factor your invoices, the money can be used for any purpose, such as funding business growth, expanding into new regions, eliminating debt, meeting payroll, or extending payment terms to attract bigger clients. This gives your business more freedom and agility, so you can respond to threats and opportunities quickly. 

2. Improve your credit profile

Your business’s ability to qualify for credit is one of its most valuable assets. And while the use of invoice factoring does not directly impact a business’s credit score, it can positively impact the perception of your company’s overall creditworthiness. 

Here’s how it works.

Improve ratios. Factoring can improve your liquidity ratios by reducing your reliance on loans and other types of debt. Instead of borrowing against your assets, factoring enables you to sell your receivables, which results in healthier liquidity and credit utilization ratios. 

Manage debt. Factoring can also give you access to the cash you need to service any debt your business carries and avoid late payments that can show up on your credit report. 

Demonstrate fiscal responsibility. Traditional lenders, including banks and credit unions, may view the responsible use of factoring as a sign of good cash management, which may positively impact their perception of your financial skills. 

3. Improve operational efficiency

The most reputable factoring companies don’t just advance cash to their clients. They work closely with them to level up their AR processes, resulting in faster, more reliable invoice payments. At AR Funding, we help our clients streamline the billing and payment process in three key ways:

• We evaluate the risk profile for each customer our clients do business with so that we can minimize the risk of late payments and nonpayment. 
• We work with clients to improve the accuracy and visibility of their invoicing processes to ensure their cash flow is more transparent and predictable.
• We provide an account management team to take the administrative burden off our clients and keep the payment process moving forward smoothly.

See the tactics our account management team works to accelerate payment for our clients, or try these pro tips yourself to prevent payment delays.

4. Connect to business experts

Businesses generally seek out an invoice factoring company for two reasons: because they are experiencing financial stress due to poor cash flow, or because they need cash to accelerate growth. In both cases, the business is facing new challenges that require specialist support.

Established invoice factoring companies maintain a robust network of trusted specialists in fields such as alternative finance, accounting, tax, and law. The factoring company can connect clients to these experts to ensure they have the support they need in areas such as credit management, risk management, and overall financial health and resilience. 

For example, find out how one of AR Funding’s service partners helps business owners get out of high-cost merchant cash advances (MCAs).

5. Save on business operations

By turning outstanding invoices into fast cash, businesses can fund payroll, inventory, and day-to-day operations sooner. This increased liquidity allows companies to take advantage of specials, supplier discounts, bulk ordering, and other money-saving strategies that can only be unlocked through prompt or early payment. While savings of 1-2% may not seem significant, they can add up quickly, and that extra cash can be used to fund growth initiatives that generate a significant return on your investment. 

Strengthen your financial toolkit

Invoice factoring is a powerful financial tool. Used on its own or in addition to other financing options, factoring can unlock the cash your business needs. 

But the benefits of factoring go much further. As a responsible financial tactic, factoring can help you smooth out cash flow, streamline AR operations, improve creditworthiness, and streamline AR processes. The result is an enhanced stability and agility that enables growing businesses to thrive.

If you’d like to learn more about adding invoice factoring to your financial toolkit, talk to a factoring expert in your region.