How Factoring Companies Solve Cash Flow Issues for Businesses

Growing businesses may face issues with the timing of customer payments and their own expenses.

These businesses can also face challenges when establishing a traditional line of credit with their bank. Factoring helps businesses by providing flexibility to keep growing, meet financial obligations on time, and access funds quickly. A factoring company cuts through the red tape for businesses to keep cash flow flowing.

What is a factoring company?

Factoring is when a business sells its unpaid invoices to a factoring company at a discount. This process provides immediate cash flow, which can be crucial for businesses facing cash flow timing challenges. The factoring company then takes on the responsibility of collecting payments from the business’s clients. Unlike traditional loans, factoring doesn’t require the business to take on debt or provide additional collateral.

Who uses a factoring company?

Small and mid-sized businesses, such as staffing agencies and trucking companies, often face significant cash flow challenges. Their customers are slow to pay their bills.

This makes it hard for the company to pay employees, cover expenses, and attract new customers. This delay in payment can last up to three months.

A lack of cash flow can create financial strain, limiting the business’s ability to operate smoothly and grow. Industries in the telecom and oil and gas industries also use factoring to manage their cash flow.

How Scale funding helped businesses grow

Scale Funding worked with a staffing agency that was struggling with delayed client payments. They used factoring to improve cash flow. This allowed them to pay their employees on time, maintain operations, and fill more orders.

A trucking company facing similar challenges used Scale Funding to get immediate cash. This helped them purchase fuel for their trucks and pay drivers promptly. As a result, they could take on larger contracts, significantly increasing their business. 

Businesses use factoring for quick cash, without more debt, with financial flexibility, and predictable cash flow.

The factoring process

You might wonder if working with a factoring company is right for your business. Here’s how it works:

1. Invoice Submission: The business submits its invoices to the factoring company.
2. Cash Advance: The factoring company advances a percentage of the invoice value, typically around 90%.
3. Collection: The factoring company collects the full payment from the business’s clients.
4. Balance Payment: After the client pays, the factoring company pays the rest to the business minus a small fee. 

Businesses can decide which invoices to factor and how often to do so based on their cash flow needs.

Start today by requesting a quote from Scale Funding.