How Invoice Factoring Can Help Solve Payroll Problems

The recent economic crisis has seen hundreds of thousands of businesses worldwide either go bankrupt or come very close to it. UK businesses have suffered and as a result, they have to be extremely careful when it comes to cash flow. It is common practice for larger companies to take as long as possible when it comes to paying invoices. Companies who provide goods and services to these giants are being badly affected because the delay in payment is severely reducing the amount of ready cash they have available. Now that every company likes to pay invoices slowly to preserve their own cash flow, the businesses selling the goods are getting into financial trouble.

The phenomenon of living from wage packet to wage packet is common amongst working class people but existing from invoice to invoice is the business equivalent. Smaller companies are most at risk because they have a small amount of cash at hand. When they are forced to wait for their money from invoices, they have to delay paying their own suppliers and most importantly, their staff. People can’t afford to work for free so a company that is unable to pay its employees will soon go out of business.

Building solid cash reserves is the first step towards preventing a cash flow catastrophe. However, few small businesses have the ability to build any meaningful cash reserves. This is unfortunate because those who can save some cash will be able to survive the inevitable rough patches that hit all businesses. When building cash reserves through saving is not a viable option, there is another way to improve your cash flow.

It is called invoice factoring and could be the difference between a business folding or expanding. In a nutshell, you sell invoices to a company who pays you an average of 80% of the money up front. The remaining cash is not paid until your clients fulfil their financial obligation. At that time, you receive the rest of the money minus fees and charges collected by the provider. With invoice factoring, you are also giving the provider sole control of debt collection. They are free to contact your clients and request payment any way they choose. It is a great option for struggling companies who only have to worry about sales because once products/services are sold; they are guaranteed a substantial percentage of the invoice immediately.

Your company is not eligible for invoice factoring if you are selling to the public. Only companies involved in B2B trading are considered. It is also important that you have a diverse range of customers who have good credit histories. Once a provider determines that your company is on solid ground and has customers that are reliable when it comes to payment (albeit slowly), you will be accepted for invoice factoring.

This method of funding your business is tied to your sales. If your company is expanding and growing, the money will continue to roll in almost instantly. The result will be a well-paid and happy workforce and work environment and this almost always leads to improved performance.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.

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