Category: Business

It is no secret that a healthy cash flow is the backbone of any and every business, no matter the scale or the industry it belongs to. However, it can be a challenging task for small and growing businesses to maintain a steady cash flow in their initial years. To survive and thrive in a highly competitive market, aspiring firms must devise strategies on how to deal with cash flow problems for small businesses. Factoring is the ideal answer to the million-dollar question of how to overcome cash flow problems. Also known as accounts receivable factoring or invoice factoring, it is a financial strategy used by firms to maintain cash flow. It involves selling their unpaid invoices to a third-party financial company, known as a factor, at a discount. Sellers are required to issue invoices to buyers when they sell goods or services on credit. The invoices also feature the payment terms and due dates. The payment terms usually state longer deadlines to make the offer more favorable to buyers. However, lengthy payment terms can mean a shortage of capital for sellers. It can also lead to an alarming crisis in case of delayed payment or non-payment of invoices. This is where factoring comes to the rescue. Instead of waiting for the customers to pay the full invoice amount, the business can sell these invoices to a factor. The factor pays the business a percentage (up to 70%-90%) of the total invoice value upfront, providing immediate cash flow. As such, factoring is designed to benefit firms in their hour of need, especially when it comes to effective capital management. In this blog, we will take a look at how businesses can leverage factoring to solve cash flow problems.