Many small businesses, particularly those in the trucking and freight hauling industry, struggle with irregular work demand, long lead times in payments, and rigid terms for bill due dates. While there are some risky alternative funding options that could make things worse, a common financing option that is used in this industry with great success is invoice factoring.
What is Invoice Factoring?
Invoice factoring allows a business to sell its accounts receivables (invoices) to a third party. When a company enters into a factoring agreement, they receive immediate payment for their outstanding approved invoices from the factoring company in exchange for a small percentage of each invoice. The factoring company will then collect the payment for those invoices from the client.
How Invoice Factoring Can Help Your Business
Here are several benefits to invoice factoring that can contribute to making your business recession-proof and help it through difficult times.
- Access to Working Capital. When the last recession hit, many small businesses were unable to access working capital due to tighter controls from banks. However, invoice factoring remains a stable access to cash because it is backed by accounts receivable. Funding for invoice factoring is also fast, with approvals often coming through in 24 hours or less.
- Pay Your Monthly Expenses. Companies that use invoice factoring no longer need to wait for clients to pay their bills so that they can meet payroll or cover other key expenses.
- Eliminate Collections Worries. If you have some vendors that are slow to pay, you can turn over collection concerns to the invoice factoring company.
- Avoid Penalties. Late fees and penalties can pile up when you don’t have the capital on hand to pay your bills on time. This can also cause strained relationships with suppliers. Fast access to working capital can eliminate these issues.
In tight economic times, a growing business may need a little extra help to survive, and most would like to avoid taking on additional debt. Invoice factoring is the ideal solution for many businesses to gain fast access to working capital.