Small business owners and founders will all tell you; there’s getting a business off the ground and then there is growing it. For most businesses, growth takes capital and that’s not always easy to come by. In some businesses, there’s a need for capital equipment (trucks for the transportation industry as example) and in some service related businesses the need for equipment is minimal. The type of business you own will determine the type of capital, and certainly the amount, you need for growth.
One form of effective financing is a Working Capital Advance. Many B2C and B2B companies find this method simple and effective. They get an advance on future work and are able to use that upfront cash to fund business growth. A company can often get approved in hours and get funding in days.
The other form of financing that can grow your business faster without putting personal property or control of your business on the line is called invoice factoring. If you talk to small business owners, like we do every day, what you’ll find quite often is that it’s not the revenue that slows growth, but rather the speed in which customers pay. You’ll hear comments like, “I’ve got plenty of money invoiced to customers, but they don’t pay fast enough to let me invest it in servicing them better.” Or, “If had the money I’ve invoiced in house, I could buy more or better equipment to do the job faster.”
These scenarios are not uncommon among small business owners. With payment terms dictated by clients, often 30 to 60 days, they cannot invest in equipment or personnel to do the job. What if a third party could take over invoicing and pay those same bills in hours instead of months? The small business owner could use that money to service their customers faster, helping to drive more business.
Who uses invoice factoring? You’d be surprised how common it is across a wide variety of industries, but here are some industries that commonly use factoring:
- Transportation – Freight bills are often not paid until well after delivery, and there can be a good deal of expense in getting them delivered. That’s okay if you’re a large transportation company, but if you’re a small to midsize fleet, immediate cash is often needed to fuel your trucks and pay your drivers.
- Oilfield & Gas – Running an oilfield or gas operation requires a heavy investment in capital equipment, and yet payment terms can run 60, 90 or even 120 days. If you had access to immediate cash in this industry, you can take advantage of the robust demand for work in this hot industry.
- Government – Lengthy and complex invoice terms and conditions can weigh government contractors down. With invoice financing, not only does the factoring company provide the access to cash you need to fund your contracts, but the factor assumes the receivables and complexities that come with them.
- Staffing – When you’re dealing with long invoice terms of often 60 days, and yet you need to worry about human capital, it can be challenging. When you have staff there are often pre-employment and payroll taxes that go along with paychecks. Invoice financing can get you the cash you need to not only pay your employees and tax liabilities, but fund new opportunities.
Small business owners that need capital to grow their business have options. With invoice factoring, they can reduce personal risks and lack of company control. It might be the best choice for their financing needs.