Invoice Factoring - 8 Industries To Benefit From Invoice Factoring
It has been outlined from a 2018 survey that small to medium size enterprises go through a cash flow problem when it comes to generating capital. This happens mainly with funds being locked up in accounts receivable. Outstanding accounts receivables can affect the growth of businesses.
There has been a rise in invoice factoring companies too in recent years. This is an indication of how the stigma around this ancient financial system is gradually being changed. More and more industries are now using the services of an invoice factoring company to maintain steady cash flow.
However, many of the SMEs consider themselves ineligible for factoring services. This misconception comes with the lack of awareness about how to finance the accounts receivables. Invoice factoring companies are a great option when it comes to getting quick, debt-free funds. There are some areas where invoice factoring doesn’t suit too. Therefore, we have listed down a few industries where you can consider factoring your invoices and keep your growth pointer up high.
Case 1: A Staffing Company
A staffing company that pays its employees weekly. Their clients pay the staffing company at the end of the month for their services. This makes it difficult for the staffing company to pay the weekly wages to their employees on time. Through invoice factoring, the staffing company can have maintained cash flow and retain their employees paying them on time.
Case 2: A Manufacturing Company
A manufacturing company fulfills their orders on time and invoices its clients for a period of 3 months. At the same time, a larger order comes from a bigger client which can change the future of the company.
With the lack of working capital, it becomes difficult for the manufacturing company to arrange raw materials in time. Three months become a long wait period when it comes to delivering the products. With the services of an invoice factoring company, the manufacturing company can get the funds needed and have the necessary inventory.
Case 3: An Electrical Shop
An electrical shop owner has a long-time customer who takes a number of electrical goods to their shops monthly. The invoices raised are normally paid by the customer within two months period. But once the market went down, the customer was not able to pay the shop owner on time.
This makes it difficult for the electrical shop owner to meet his operational activities. Factoring the invoices can get him those invoices cashed out immediately even if the collection process from his client delays. This keeps the business away from a sudden standstill.
Case 4: Retail
Retailers often get stuck in their business with different cash flow challenges. The unsteady cash flow due to seasonal and unstable sales can affect the business of a retailer. With the growing competition from the current and upcoming market and start-ups, they find it difficult to cope up without a steady cash flow.
Factoring their unpaid invoices will help to have a steady cash flow and opportunity to buy more inventory or expand his business. With steady cash flow, they can take up new opportunities without the constraints of available funds.
Case 5: Construction
Construction companies are one of the growing sectors and cash flow is one of their major problems to deal with. Most of the times, it takes a long time to clear the bills that come with huge numbers. These pending invoices make it difficult for the construction company owners to take up further projects within a time period. In addition to that, the middlemen involved in small scale construction projects take a longer time to pay their invoices.
With factoring these invoices, they can get ready cash available and stock up on supplies needed for the next project. This will clear out the time delay in taking up other projects.
Case 6: Food
Let’s take the case of a small scale restaurant. They deliver their orders on time and invoice their customers. Their customers pay within 30-60 days. This routine continues but the restaurant owner decides to expand their services. They approach a factoring company and get their services in exchange for the outstanding invoices.
The relationship with the factoring company grows over time. A larger order from a bigger hotel is offered to this restaurant, which needs more inventory to fulfill this order. Bank loan becomes difficult to obtain within this short period of time.
The factoring company, with a long-standing relationship with the small restaurant, can extend their services to overcome the cash flow gap in this situation. This will be helpful for the restaurant owner to take up that order and grow his/her business.
Case 7: Security
Companies offering security guard services have their cash flow from different firms. Payments from these companies and firms can take a significant amount to reach to the security guard service company. Even though the payments are made at a later stage, this creates a cash-flow gap.
This can cause a delay in paying the employees and insufficient resources to take up a larger offer. Let’s say a company already have a bank credit line to pay its employees on time. When a bigger offer comes, they might not be able to get another service from the bank.
Here, they can choose to sell their invoices and can get debt free funding immediately. This will solve the cash flow problems and will allow the company to provide services to the bigger deals.
Case 8: Logistics
Logistic companies have to deal with late payments from their customers. This delays the payments for the employees like the drivers, and other staff who works for the company. Factoring the invoices can help with covering up this cash flow gap and retain the employees necessary for the smooth running of operational activities.
Is Invoice Factoring Relevant For Your Industry?
In the above-mentioned industries, most of the SME owners think about the traditional bank loans and get disappointed with the hurdles to get the loan approved. Services provided by an Invoice Factoring Company are not only easy to apply but also require less documentation. If you have a credible customer to whom you have invoices raised, then you can consider invoice factoring.
It can avail your funds based on your outstanding invoices within a week. The steps for factoring your invoices are simple too. Keeping a long term relationship with the invoice factoring company will let you be free from the hassle of collecting invoice amounts and waiting for the customer payment to grow your business.
At Finaxar, the entire application process is online. It takes less than 72 hours for your application to get verified and approved. All you have to do is integrate your accounting software to the account you create on the website. Moreover, you don’t have to worry about any kind of fee until your customer pays off the invoices.