Invoice factoring offers an outstanding way to secure your cash flow and lower risk at your staffing firm. However, it’s important to understand some of the intricacies of the process before jumping in. That way, you can find the precise factoring deal that works best for you, getting the most possible out of the opportunity.
Under invoice factoring, you receive cash for your unpaid invoices. A factoring firm fronts you the money you’re owed, receiving a fee in return. This allows you to get your funds more quickly, flattening out bumps in the collection process. As a result, you have more certainty in planning and have the cash on hand you need to run a smooth operation.
How Invoice Factoring Can Help Your Staffing Firm
As you weigh your funding options, it’s important to understand the benefits you can receive through invoice factoring. Here are some of the advantages this form of funding can offer:
Protect Your Cash Flow
You’ve made a sale but haven’t received payment for an invoice yet. This puts you in dangerous territory, having provided the necessary service while waiting for the cash to arrive. Invoice factoring can lower this risk and secure your cash flow.
Provide a New Financing Option
You likely have other funding options available. From loans to lines of credit to potential investors, you have access to cash if needed. However, these all come with specific drawbacks. Invoice factoring provides yet another tool when you need an injection of funds.
Sidestep Additional Debt
Keep your balance sheet clean by avoiding long-term liabilities. Along with its other benefits, invoice factoring lets you sidestep the necessity of taking on burdensome debt or turning to high-cost options, like credit cards.
How to Get the Most from Invoice Factoring
Once you’ve decided to move forward with invoice factoring, there still remains a series of decisions to make. Many options exist within this funding type. Here are some steps you can take to maximize the value you receive from invoice factoring:
Research Your Options
Learn as much as you can about the factoring process. This will let you find the deal that suits you best. Here are some of the basics you should keep in mind:
- Fees: Factoring agreements can include multiple kinds of cost structures. These include origination fees, termination fees, and weekly/monthly fees.
- Terminology: Familiarize yourself with the basic language of factoring agreements. This will help you find the ideal situation for you. Learn about terms like invoice aging reports, customer limits and reservations, and warranties.
- Recourse vs. non-recourse factoring: These situations describe who is ultimately responsible if an invoice becomes uncollectable. They are important concepts for determining the costs related to a factoring agreement, as well as the potential risks.
Have a Detailed Financing Plan
Invoice factoring should be a part of a broader financial plan. You shouldn’t rely on a single source of cash. Have a broad financial network in place. This can start with a factoring partner but should also include other alternatives, from traditional lending institutions to potential investors to lines of credit.
Dive Into the Details
Make sure you understand the fine print of your factoring agreement. Small details can make a difference in your cost and risk structures. The better informed you are, the better decision you can make.
Looking to Find the Right Factoring Partner?
It’s crucial to discover a factoring partner you can trust. Frontline Funding can give you the insight you need to make the best decision for your staffing firm.
Contact Frontline today to learn more.