Some business owners might think the process of factoring receivables is complicated.
The process is actually very easy: Factoring is simply the practice of selling accounts receivable to a third party. That’s it. Simple enough, right?
Let’s say you have chosen to partner with Universal Funding and have factored your first invoice. You receive most of the money you are owed on that invoice as soon as we receive it. Universal then waits for your customer to pay, and once he does, you receive the balance you are owed, less a small fee for our service.
One of the biggest killers of new businesses is insufficient working capital. That’s due to the simple fact that revenue rarely keeps up with expenses in the short term. Having cash available to deal with dips in business, unexpected expenses or slow payments from customers is hard even for established businesses. Large companies typically deal with the problem by keeping an open line of credit with one or more banks. For a relatively new business, factoring can be a particularly valuable solution to this problem because it provides cash flow without adding debt to your balance sheet.
Debt shouldn’t be used to gain operating cash flow, it should be reserved for expanding or improving the business or purchasing major equipment; investment that adds value to the company.
Factoring provides a means to bring in the daily operating cash that you need. It’s really nothing more than speeding up your cash flow, receiving almost immediately money that might otherwise take 30, 45, or 60 days (or longer!) to arrive. That enables you to pay operating expenses with your revenue, which is how your business should work.
A benefit of factoring that’s often overlooked is the fact that it can save you from having to hire someone to handle your accounts receivable. If you haven’t needed to hire someone for this role, chances are you’ve been handling it yourself. Factoring your receivables could free up time for you to focus on building your business instead of dealing with the mundane but very important task of managing your A/R. If you’ve been doing it yourself chances are you have neglected the dozens of other duties that make up the day of a small business owner; tasks that could lead to more business.
Invoice factoring with Universal Funding can be a way to maintain a healthy cash flow without having to resort to debt.