Published On: Fri, Nov 17th, 2017

The Search for Smarter Business Funding Method Ends at Invoice Factoring

The cost of borrowing money is a concern for any business owners as they turn to alternative methods of financing. Time is money, and the faster you can plug the gaps in cash flow, which can often occur, better it is for maintaining the fast pace of business that helps overcome competition. To meet the growing demand for quick money at low cost, finance companies NZ are delivering solutions that free time and offers flexible cash flow options. These companies work out solutions that address the changing needs of business and provide suitable financial tools so that it receives timely financial support.

photo/ Gerd Altmann

Smart cash flow solution

Some finance companies are making use of the traditional financing model of invoice factoring which is the most attractive tool for many businesses. The device aims at squeezing the business cycle that tends to keep on stretching due to growing competition among companies. Offering extended credit to customers is a much-used technique for increasing sales, but this can put unwanted pressure on the cash flow and create impediments to business growth. Poor cash flow can stifle growth and companies would like to ensure that there is a steady flow of cash by adopting smarter ways of funding like invoice factoring.

How invoice factoring works

Invoice factoring is the method of financing that is entirely different from loans as it makes use of the inherent financial strength of companies that remain unexplored. The underlying principle of this method of funding hinges around the sales that happen because it aims at converting credit sales into cash sales so that the money, which is your own, comes to you speedily. Quick cash against sales invoices means that you effectively shorten the business cycle and put back the capital back into the business. Faster recycling implies cash flow remains buoyant always. Although this model is preferred more by some industry types, like freight factoring, any company that has good sales can make use of this arrangement.

The modalities

When you make credit sales, you generate an invoice, which is nothing but deemed cash.  The invoice factoring company would purchase the invoices from you and pay you the invoice value after deducting the fees, between 2% to 5%, that charge for the services.  Efficiently, you would receive 95% to 98% of the invoice value out of which 80% comes to you within 24 hours of presenting the invoice.  The model works on the assumption that customers make payment within 60 days. For more extended credit period, the applicable fees would be higher.  The creditworthiness of customers plays a significant role in obtaining services at much lower cost.

When banks are reluctant to extend more overdraft facility, the invoice factoring provides the lifeline to businesses that they desperately seek quick finances to make the company grow through increased sales. The timely influx of cash provides the necessary thrust to sales that paves the way for business growth. The beauty of factoring is it is not a loan and does not show up as a liability on the balance sheet.

Author: Charlie Brown

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