Why Use Invoice Factoring?
Invoice factoring is used by businesses for a variety of reasons, but most commonly to increase working capital and improve cash flow. It can be a useful source of funding for start-up businesses that have plenty of orders but find difficulty obtaining new business loans to fund them. Similarly, any business with an immediate problem obtaining cash to meet its obligations might find a factoring service helpful.
Invoice factoring can also be a way of reducing administrative overheads, as the factoring company will take on responsibility for collecting payments due on the outstanding invoices. Furthermore, the factoring company can help with credit management and, depending on the type of agreement, take on the liability for bad debts.
New business loans or other types of business loan can potentially be used instead to provide funds to support a business. However, the business will need to be able to show that it is able to repay the loan. Invoice factoring advances money against invoices raised for work that has already been completed and so there is less risk that the money will not be available to repay the loan. It is therefore often easier to obtain than some other sources of finance.
