Do you ever wonder how much profit you are missing out on because you don’t have enough working capital? We recently had the owner of a business come to us to see if we could work together so he could grow his business. He had been in business for three years, had $200,000 in receivables, a good reputation and opportunities for more and larger jobs. He was concerned if he took on those new jobs that his current cash flow would not be able to sustain the added expenses. With having to wait 45, 60 and more days to collect on invoices he was not going to have enough working capital to cover payroll, materials and taxes for the new jobs. After hearing his situation and that he was having trouble getting a traditional bank line, we discussed how invoice factoring could help him get the working capital he needed to bid on those more profitable jobs.
Invoice factoring, also known as accounts receivable factoring, is when a company sells their unpaid invoices at a small discount in order to receive immediate access to cash. The funds are typically used for operating expenses such as payroll, vendor payments and business growth. With invoice factoring a business can turn unpaid invoices into immediate working capital and not have to wait the 30, 45 or 60 plus days to receive payment from their customer. Simply put, with invoice factoring the business sells their unpaid invoices to an invoice factoring company and receives up to 80% of the funds. Then, once the invoice is paid by the customer the factoring company remits the balance minus a discount.
After learning more about invoice factoring he decided it sounded like a good fit for his company. He completed the quick application process and was easily approved. He has already bid on and won a new very large contract that he never thought he would be able to. Even though the fees for invoice factoring can be a bit higher than a bank line of credit, if your company can earn larger contracts and have your gross profit increase more than the cost of the financing, it can make opportunity knock at your door more than you could have ever imagined.Back to blog