Why Invoice Factoring Can’t Beat Accelerated Invoice Payments
If your small business provides goods and services to other businesses or the government, wouldn’t you want to know the best way to turn slow-paying customer invoices into liquid cash flow? If you’ve been thinking about invoice factoring as a way to get working capital quickly, you’ll want to read further to make the best decision, thereby avoiding a mess of trouble in choosing the wrong company.
Although Invoice Factoring is still a strong industry after years of ups and downs in popularity, changes in technology and business culture have inspired the creation of numerous alternative invoice payment solutions, most built to speed up the process of getting paid, so that small businesses no longer have to wait so long to receive money. The faster you get paid, the better your cash flow and working capital, and the more helpful that is for your balance sheet.
Invoice Factoring – What it is and How Small Businesses Use it for Cash Flow and Working Capital
When your company performs a service or sells goods to another company, it is referred to as a business-to-business (B2B) transaction. When you do the same for the federal, state, or local government, it is a business-to-government (B2G) exchange. In either case, the cost could be significant enough that the client asks to be billed with an invoice, so they have enough time to gather the funding resources to take care of the payment.
Typically, an invoice can range from 30 to 60 or 90-day payment terms, meaning your company expects to have the money in its bank account by then. With small businesses being the backbone of the economy, this widely accepted but unofficial merchant credit system keeps the economy afloat and allows businesses just like yours to keep running in hopes that on-time invoice payments will keep reserves of working capital well fed from sales-derived inbound cash flow.
However, the reality for most B2B and B2G entrepreneurs is that every invoice provided to clients for what you’ve already delivered runs the risk of slow payment, late payment, demand for even longer extended terms, or, worst of all, a payment default. As most eventually find out when dealing with client invoices, a thirty-day payment term can drift into 45 days or longer, with an average of upwards of 65 days to pay a 30-day invoice. In other words, B2B and B2G working capital can be a long, frustrating waiting game.
When you have to wait on payment, bills stack up, employees want to be paid, vendors and suppliers have their hands out, inbound cash flow starts to shrink, and the working capital position becomes shakier because you’re forced to spend money not earned from sales to pay your many business tabs.
So, when small, flexible businesses find themselves with stacks of invoices (account receivables) but low on operating capital, they have to choose whether to use debt for an infusion of cash or convert existing assets into cash to temporarily prop up day-to-day operations.
Invoice Factoring Comes to the Rescue, but What Happens After the Dust Settles?
Invoice Factoring was once a bright, shiny new way for small businesses to convert billed invoices into fast working capital for use in running daily operations, meeting payroll, taking care of business emergencies, or making strategic investments in supplies and inventory.
The problem, however, is that not all factoring companies play fair, nor do they all have the best interests of your business at heart. Decades of shady practices and underhanded behavior by firms taking advantage of small businesses have dragged invoice factoring’s reputation through the mud. There is hope and a way for your company to get paid immediately for the goods and services you provide.
Why Invoice Factoring Comes With Some Problematic Drawbacks
Despite its sometimes questionable reputation and the fact that some lending institutions see invoice factoring as a desperate move for businesses lacking strong financial fundamentals, there are decent providers out there who are not out to hurt anyone. That does not mean that a busy entrepreneur has time to do investigative research on individual factoring companies. When you go to an established lending banking institution, you expect certain oversight and rules to keep loan officers operating within strict legal if not moral limits. Furthermore, you expect that a responsible bank will look closely at your books and resist placing your business in a position where you have difficulty paying them back.
Invoice factoring companies operate under their own individual legalities and, in some cases, have been known to help a struggling business struggle even more.
Invoice Factoring Brings Risk to Your Reputation
Businesses like doing business with solid companies they can rely on now and in the future. When clients find out that you’re using a factoring company just to stay afloat, it can cause some loss of confidence, and you could lose more than one business relationship if they believe you are getting involved in long-term dealings with an unstable company.
Client Interference by Invoice Factoring Companies
Nothing will cause customers to lose confidence in your business faster than them getting a phone call from factoring firms harassing them to collect on an invoice obtained through their business relationship with you.
Your clients will never form a connection or trust doing business with a stranger ‘bill collector,’ and will hold you responsible for any heat, pressure, or bad blood that results from inpatient dealings with your invoice financier. Some clients would be clearly insulted and stop doing business with you.
Hidden Costs, Lack of Transparency, and Disguised Practices
From hidden fees and tactics to hide well-disguised interest and penalty payments to hastily rushing over the details of what happens if your client falls behind on payment or defaults, unexpected invoice factoring charges can add up to a point where they feel like hefty liabilities rather than an escape route to a stronger working capital position.
Recourse Arrangement Put Company or Personal Assets at Risk
Making the wrong invoice factoring deal with an unscrupulous company can result in being forced to put either company assets on the line in case the invoice doesn’t get paid, or use your own name to guarantee payback. In either case, your risk goes through the roof, and your signature weakens your organization by encumbering capital, facilities, equipment, and growth potential. Again, raising working capital shouldn’t feel like being tricked at a pawn shop. Improving cash flow should feel like gaining freedom and financial security to grow fearlessly.
Harassing Behavior and Unfairly Passing the Buck on Collections
Beware of any invoice factoring business known for harassing small businesses whose clients fall behind or default on invoice payment. You should not be held responsible for their failure to verify the integrity and quality of the invoice. If they are willing to put the money on the line the same way you did, doesn’t it make sense for them to take on the full weight of the collection duty? Again, some of these companies will not only harass your clients, they may try to harass you into helping them do it, lest they point to the recourse arrangement and threaten your business assets.
Like Payday Loan Companies, They May Be a Sign of Lousy Business Habits
Going repeatedly back to a factoring company can become a bad financial habit that slowly degrades working capital levels through fees and interest. Companies can grow unintentionally dependent on the convenience of fast access to capital, but at a steadily higher cost with growing risk.
In that kind of situation, the factoring company veritably takes on the role of a pawn shop, exploiting desperate entrepreneurs at the expense of your company’s stability, weakening your capacity to grow quickly and boldly. Factoring then becomes a worse liability than taking out short-term, high-interest loans.
Invoice factoring was originally designed to be a temporary solution, but if anything in your daily operations spirals out of control and causes an expensive emergency situation, heading back to pay more high costs to convert invoices can be extremely tempting to the point it becomes a pattern that needs to be broken if your business is ever going to regain a solid financial footing and a strong balance sheet.
What Would it Take for an Invoice Payment System to be Better than Invoice Factoring?
Small business entrepreneurs look to alternative cash flow resources such as invoice factoring when they find themselves at a disadvantage when faced with the prospect of approaching traditional lenders. A large percentage of small businesses have to make flexibility into a daily lifestyle or lose the ability to compete for business. This means small businesses like yours may cease to be a perfect fit for quick funding from the banks, but remain a perfect candidate to raise capital by converting invoices into immediate cash flow.
First, an Invoice Payment System Should NOT Be Factoring or a Loan!
There is no reason whatsoever for you to take out a loan on money that belongs to you and for which a factoring company merely pays you a discount. Therefore, why settle for ‘discounted payments’ or ‘holdbacks’ on your money as high as 15% or more? If your invoice value is $25,000, then you shouldn’t be restricted to getting only 80% to 90% of that money with the rest following weeks or sometimes months after the invoice is paid.
The best scenario, and one that controls costs for you, is to pay a small, flat fee like with a credit card transaction and let that be the end of it. The money is yours. A tiny convenience charge is all that’s necessary to turn an invoice into capital you can use.
The Best Small Business Invoice Payment System Works Immediately
The convenience that feels like taking a credit card should be yours to enjoy. If you’re a start-up or are still years into ‘Start-up Mode,’ and you have invoices stacking up. You cannot afford to let long weeks go by while waiting for payment while working capital reserves dwindle. Why wait weeks when you can be paid right away?
Getting Paid Immediately Should Be Simple to Set Up and Start Fast
Setting up your invoice payment account should take very little time. You should not have to go through weeks of paperwork or long interviews with nosy accountants combing through every aspect of your affairs. If you conduct B2B or B2C business and take invoices, then most of the heavy lifting should be done for you.
You Should Be Able to Choose Which Invoices to Use for Liquid Capital
No company should be able to order you to turn over all your valuable invoices so that they can pick and choose which ones they like and throw the others back in your face. Why give up that kind of control and connection to your customers?
Instead, your working capital resources should allow you to choose the exact customer invoices that are the most advantageous for your business goals. By giving you the ability to convert invoices strategically, your capital provider shows trust in your expertise.
Raising Working Capital Using Your Invoice as Your Asset Should Lower Risk
When you have already delivered the business, you should not have to take on additional liability and risk just to get your hands on money your business has fairly earned. You should not be penalized for transferring your accounts receivable asset to a working capital provider.
Your invoice payment system must not require you to co-sign as a guarantor as though you were taking out a loan.
Improving Cash Flow Through Your Accounts Receivable Invoices Should Cut Costs
Paying hidden fees, disguised interest, and late payment penalties adds up and takes a toll on you and your business. Your invoice payment solution should charge only a small, flat one-time merchant fee so that there’s almost no difference between the retailer’s experience of being paid onsite by their customer and you getting paid immediately upon uploading an invoice into the payment system.
Your costs should be so low that taking your immediate payment starts strengthening your cash flow quickly.
You Should Not Have to Chase Down Slow-paying or Defaulting Clients
Unless you opened a debt collector’s office, you did not get into business to hassle clients about payment. You certainly didn’t sign up for the stress, anxiety, and emotional blowback that comes with making collection phone calls. So, why would you ever allow an invoice factoring company to force you into such an agreement?
Only a working capital provider who funds your invoices at low cost, low risk, and then completely takes on the responsibility for collecting on slow-paying clients will do. So, you need a solution that rescues you from the frustrations of accounts receivable.
Isn’t it interesting that invoice factoring fails to meet the needs of so many small businesses, yet remains one of the first tools some organizations reach for when in need of a cash infusion to better balance working capital outlook? Fortunately, there happens to be a better answer to your working capital worries and a superior solution for turning invoices into immediate cash flow.
How Your Small Business Can Turn Invoices Into Cash With No Factoring Drawbacks.
Satisfying the modern-day small business demand for faster invoice payment from clients has been a difficult challenge that has finally been answered. Finally, there is one patent-pending tool available in the market that is designed specifically to free up working capital for your business without all the hassle, strain, or expense.
Accelerated Invoice Payments through NowAccount is the tool savvy entrepreneurs, and small business owners have been searching for because it brings no risk, enables fast payment even on 60-day and 90-day invoices, features transparent procedures, is easy to use, cuts down on the cost, cranks up cash flow, and protects you, the customer from recourse if a client doesn’t pay on time.
The NowAccount system has all the benefits that can be found with invoice factoring but with none of the drawbacks, plus quite a few additional benefits not to be found using other alternative payment methods.
How Is Accelerated Invoice Payment Different from Invoice Factoring?
Unlike Invoice Factoring companies, setting up a NowAccount as your accelerated invoice payment method is easy and can be done quickly with minimal effort. The system does most of the work for you.
Prequalified is a breeze
Once you have your NowAccount established, you can begin uploading your choicest invoices into the system, check their progress on your NowAccount dashboard, and start getting paid immediately. When you do work or deliver a product or service, your client gets your invoice, and you can upload it into your NowAccount.
The Working Capital Provided is yours Immediately
Retailers don’t have to wait around because their customers just swipe a credit card or stroke a check, and the money goes into their business account. With NowAccount, you’ve got the very next best thing. Once your invoice is approved, you can expect immediate compensation to begin.
Your business has earned it, and we want you to have it as rapidly as possible. Once the invoice is verified and approved, you’ll get paid in as little as a day.
NowAccount allows you to be selective with your invoices
Because not every small business wants the details of their dealings all over the street, accelerated invoice payments through NowAccount give you the freedom to upload only the invoices you wish to convert immediately.
Feel free to do a mix of 30-Day, 60-Day, or 90-Day invoices as you please. Keep in mind that longer payment terms do carry a slight upcharge on fees. This makes sense because the further out a payment term, the riskier the invoice becomes, and the more work is involved in the collections effort. The great news is that with NowAccount, collections are not something you have to worry about.
NowAccount is Transparent to You, Invisible to Your Client
When you register for accelerated invoice payments, you enjoy a convenience that feels like taking a credit card payment because you get paid immediately. Nothing changes for your client in the process because they get to bask in the extended payment terms already agreed to. They don’t know you’ve already been paid, but they will know you’re always happy to talk to them.
Accelerated Invoice Payment Means No Longer Playing ‘Collection Agent’
NowAccount takes on the responsibility of collecting payments from the client on your behalf. You can put away the antacids and ease up on the anti-anxiety meditation because your days of picking up the phone to bother customers for anything more than additional business are at an end.
What a great relief for kindly entrepreneurs who get no kick out of harassing others to make them feel bad about missing payments.
Better Than Factoring and Not a Loan Liability – NowAcount Wins Easily!
As you can see, accelerating your invoice payments through NowAccount for small businesses is the easy, fast, and safe way to boost cash flow liquidity with revenue derived from a business you’re already doing or have completed using an invoice with extended 30, 60, or 90-day terms. Get started today and watch your static invoices turn into working capital that you can use to grow your business fearlessly!