How Factoring Invoices Can Help Consulting Firms
All companies need money to operate. Without adequate capital, it is impossible for a business to keep its doors open. Companies generally depend on a mixture of revenue and debt in order to pay their bills and fund expansion.
Bank loans are the most common source of debt of businesses. However, they can be difficult to obtain, especially today when banks are less apt to loan out money. An alternative to this is invoice factoring. This type of financing is available to businesses in a variety of industries. Consulting firms are one type of businesses which could benefit greatly from factoring invoices.
Consulting firms may sometimes find it difficult to meet their financial obligations because they often invoice their clients. As a result, they do not get paid until after services are rendered. This may be 30 to 60 days afterwards which can place a huge strain on a businesses’ working capital. Factoring invoices allows companies to be advanced nearly the full value of their outstanding invoices, typically between 70% and 90%. There are a number of benefits to this type of financing. They are as follows.
- Factoring invoices means fast money: Consulting companies would be able to collect money for their invoices right away, instead of waiting the 30 to 60 days they would normally have to. The invoice factoring process allows businesses to receive funds in as little as 24 hours. This can be a tremendous help to companies that need money fast.
- Factoring invoices means no need for bank loans: Many companies rely on bank loans to get the money they need. These types of loans are available for some companies but not all. Those with average-to-poor credit or new businesses may find it difficult to find a bank that will loan them money. Conversely, invoice factoring is available even to businesses with poor credit histories or those that have only been in existence for only a short amount of time.
- Factoring invoices means support services: The factoring company will collect on the invoices via letter or a phone call if necessary. They will then return the balance to the company they purchased the invoices from, minus a fee.
Consulting companies can access immediate cash simply by factoring invoices. Instead of waiting 30 to 60 days to be paid by their clients, they are able to receive perhaps much needed money, extremely quickly. This financing option would allow a consulting company to generate the capital they need to pay their fixed expenses, purchase office supplies, traveling costs to meet with clients and even expansion. All of these obligations can be made without taking out a bank loan or relying on the capital that a business has on hand when they choose to factor their invoices.