1/18/2024 0 Comments Small business invoice factoring![]() Invoice factoring is a good option for a smaller business for the following reasons: Without the capital in the business to tide them over, the smaller business may find themselves in real trouble. Smaller businesses that sell to larger organisations are especially at risk as larger organisations often operate on 3-month payment terms. In some cases, this may be a monthly fee arrangement or simply a longer-term invoice arrangement. Why is invoice factoring good for a small business?Ī small business will often find itself in the situation where they have a number of customers that are using products or services that they pay for in the future. These are based on the credit worthiness of the customers, the turnover of the business and the number of invoices that will go through the books each month. The cost to the business is the discount rate plus the service charge. This arrangement allows the business to draw down a set amount each month based on the invoice turnover. The lender will then look after the administration of the invoices and ensure payment for a further fee which is based on the complexity of the debtor book. ![]() Invoice factoring is where a business sells its invoice book to a lender at a discounted rate (set by the lender and based on risk). ![]() Invoice factoring is a fantastic way for a smaller business to leverage their existing invoices and gain access to that money, even when their customers have not yet paid. This all makes it harder for a traditional lender to agree a loan. A small business will have limited funds, fewer customers, a smaller inventory, and a lower turnover than its bigger counterparts. One of the most difficult aspects of being a small business is getting funding for expansion. ![]()
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