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The accountant once asked our boss to consider having companies handle our accounts receivable to reduce risk. The extra fees was like paying insurance to make sure we get paid because sometimes it is hard to tell if our customers have the cash to pay us on our invoices. At the time, I didn’t know that it was called invoice factoring.

Factoring is basically selling your accounts receivable to some other company at a discount so you can get cash immediately. Most companies usually don’t do this because they are in effect getting less money for their products/services, but sometimes it make sense because there are
some customers that do not pay on time, while others don’t pay at all.

Another advantage of using a factoring company is to help provide needed financing. Sometimes, new companies have a hard time getting loans because there is a lack of established longevity. By using factoring services, the company gets immediate cash flow which yields the same results as a loan.

Even the best-run businesses can run into cash flow. My boss sometimes would say that everyone often says things are delayed with good reason, but he cannot tell anyone that the paychecks will be late for any reason. When cash flow is tight, a factoring company can provide much needed cash quickly.

From my experience, most customers are good companies in that they want to pay their invoices. At certain times however, the same companies do not pay because they have a tight cash flow (hence they will pay late) or if the paperwork on their end is messed up. Using factoring services will help because they will deal with the headaches of invoice collection instead of your people trying to manage this. There were times when I wasted a good portion of my time each day because I needed to keep calling them to make sure they pay us soon. Those were the times when I wished I used factoring companies to handle all that.