How does a startup organization get small business financing without trying to entice investors or take out a loan? A form of financing known as invoice factoring is an answer. In these services, a company buys outstanding accounts receivable invoices from the small business by paying a high percentage of the amount due. The small business now has cash so it can work on new large orders. The factoring company has received a reasonable fee from its financing customer and will eventually receive payment on the invoices.
Spot factoring is an option within the broader category of invoice factoring. Instead of selling all the outstanding accounts receivable to the factoring service, the small business can sell a selected number of invoices. These are usually bills with large outstanding balances that are hindering the organization’s ability to complete additional projects. This way, the small business does not have to pay factoring fees for all sorts of small invoices but only for the large ones that will bring in some much-needed cash flow.
No Debt Collection
An added advantage is that the small business does not have to focus any energy on being a debt collector when customers drag their feet a little. A factoring company such as Business Factors & Finance takes on that responsibility when buying the invoices.
Creating Goodwill Among Slower-Paying Customers
This company does not feel the same pressure about collecting the money quickly and can let the invoices sit for a couple of months if necessary. That creates goodwill among the customers who needed the extra time to pay and would have felt irritated about bill-collecting efforts by the small business within a relatively short time frame. They might have decided to place an order elsewhere next time to avoid that annoyance.
The Chance to Offer Competitive Pricing
When a small business has high accounts receivable compared to its available cash, the owners may feel forced to keep their prices for goods, services and contracts higher than they should be in an effort to generate more revenue. Once the accounts receivable problem is resolved, they have the ability to make their prices more competitive.