Lesson 2: Common Reasons Businesses Choose Invoice Factoring

3. Maintain Working Capital with Invoice Factoring

Similar to cash flow, the measure of a company’s working capital, defined as current assets minus current liabilities, can often help determine a company’s financial wellbeing. Working capital can be viewed as having money on-hand to meet your business operations’ demands. Money coming in from sales (your current invoices) may not be enough to cover your day-to-day operations, when you consider all your financial obligations – payroll, overhead, suppliers, etc.

You can’t successfully run a business for long if your business’s day-to-day operational expenses aren’t being met or if they’re hindered by lack of liquid cash. In other words, your business can’t put money into new-growth projects such as hiring staff, leasing new facilities, or venturing into new markets or territories if all its money is being held up just to keep the business running.

Business Can Depend on Cash from Factoring Services

For these reasons, businesses may choose to use invoice factoring as a way to regularly infuse cash from their invoices into their businesses. Businesses with reoccurring customers may choose to do this as a “set-it-and-forget-it” type of arrangement with factoring receivables so they know the money will be there every month. This way, the business can ensure their daily operational expenses are covered so they can better plan how to use their other investments. By factoring receivables, they can spend time on planning and execution instead of spend time worrying about where they’ll get the money to carry out the plan.