When it comes to invoice financing for small businesses, many myths surround this unique funding solution. A lot of the negative beliefs about selling accounts receivable to fund a business are due to misusing this funding solution. It is important that if you do choose to implement invoice factoring as a part of your company’s financial future, you know how to best utilize this funding solution. Any kind of funding can be a waste of your company’s resources if you do not carefully handle the way the capital is used.
Here at the Commercial Finance Group, we are passionate about helping small businesses and startups find the right funding solutions for their needs. We want to help you fuel the growth of your business. We understand how difficult it can be when your company is not yet established enough to receive traditional funding but still in need of more working capital. One solution we encourage our clients to consider is invoice factoring. However, beyond just matching you with the right factoring solution, we also want to ensure you utilize this funding to the best of your abilities. This will prevent you from being stuck in a cycle of factoring for the rest of your company’s existence. Read on to learn more about how you can best use invoice factoring to grow your small business.
Ensuring You Use Factoring To Your Advantage
Once you have chosen the best factoring company to meet your needs, be sure that you follow through with a plan to ensure your small business makes the most of this new funding solution. Invoice factoring is an excellent way to fuel your company’s growth and to access cash flow immediately. However, it will only be as successful as you make it.
Understand Your Contract
First, be sure you understand your contract fully before proceeding. Each factoring agreement is different and will include important legal information about your agreement. A good factoring company should spend time going over the terms and conditions of the contract prior to you signing. Be sure you understand what fees are involved, what restrictions are included, and what types of invoices are accepted for future funding. The better you understand your contract the more capable you will be of creating a solid business plan around this funding solution. Only work with a company who is willing to take the time to ensure you are fully aware of what you are signing up for beforehand, rather than a company who rushes you into things.
Pour Back Into Your Business
Once you have access to cash flow again, it is time to focus your funding on important aspects of your business. Factor financing should be utilized to pour back into your business. Do you need to cover payroll during gaps in cash flow? Turn your funding from invoice factoring into the money needed to keep your employees paid. Are you short on capital for an important growth tactic? Create a plan to utilize the funding from factoring for these plans. Be sure that the money you receive through factoring is spent wisely on the most important aspects of your business.
Constantly Monitor Usage Of Factoring
As is true with all realms of business, not monitoring the usage of factoring can be the biggest downfall of any small business. Be sure you have a dedicated senior financial staff member who can focus on tracking and reporting the exact usage of this funding. By having someone oversee this, you can ensure you only borrow what you need and that you cut down on factoring expenses. It will be vital to constantly monitor your new funding source to ensure you are building up and earning back the fees associated with factoring. Monitoring and reporting are two of the best ways to ensure you avoid the pitfall of getting trapped in a never ending cycle of needing to sell your invoices to continue to operate.
Communicate Openly With Your Factoring Company
As you progress with invoice factoring, be sure you stay in close communication with your factoring company. Open and clear communication will go a long way in ensuring any issues are handled in a timely manner. Clear communication will also allow for more flexibility between you and your factor. A good factoring company will be able to handle issues as they arise when you are clear about them, rather than suddenly springing issues on them down the road. When it comes to choosing a factoring company, it is vital that you pick one you feel comfortable being honest and open with.
Create A Plan For Your Future
Finally, be sure that as you implement invoice factoring into your company’s funding, you create a plan for your future. You want to ensure that this new form of funding is being utilized to grow your business and eventually put you back on the path to bankability. It should never be the goal of your factoring company to trap you in an endless cycle of invoice factoring. Instead, work with a company who helps you utilize invoice factoring as a current means to a future end. Be sure you have a clear goal in mind and that you have set forth a realistic path to achieve that goal.
Here at the Commercial Finance Group, we view our role as being a bridge between unbankable and bankability for small businesses and startups. We understand that when you are just starting out or your business is still relatively small, it can be difficult to acquire the funding you need to grow. Whether you battle seasonality or you are entering a stage of rapid growth, our team will work with you to attain the ideal funding solution for your needs. Reach out today to learn more about invoice factoring.
