Factoring is an alternative way for businesses to swiftly bridge and stabilizes cash flow gaps without relying on banks or lending institutions. Instead of applying for a loan, a business sells its unpaid invoices to a third party (factor) for a cash advance that’s lower than the invoice amount (90%, for instance). The factor will then collect the amount owed, while your business will be able to bridge any cash flow gaps and sustain its operations.
By their very nature, some industries require regular and consistent cash flows, and factoring is an attractive option for businesses looking for a quick injection of cash. Here are industries that could benefit from factoring.
Most manufacturers put out a constant stream of products, and a gap in cash flow could easily keep off a company from fulfilling its duties. Manufacturers have to deal with a ton of risks, including high production costs and rising transportation and fuel costs. Also, there can be a slippery slope from unfulfilled orders to a soiled reputation, and finally, bankruptcy. Factoring can provide funds to help offset urgent needs such as fuel costs, to repair or upgrade equipment and to clear any salary arrears.
Health care providers are another set of businesses that require constant cash flows. Cash flow issues could cause significant problems, especially since they provide an essential service. Due to a variety of reasons like slow-paying insurers and customers, health care businesses might have gaps in their cash flows. For an industry as vital and in demand as health care, factoring can be the difference between life and death. It may provide funds to pay vendors and employees, buy medical equipment and offset rent and mortgage expenses.
Just like the manufacturing industry, construction often has a high turnover, and the sector is just as susceptible to cash flow issues. This could be due to slow-paying clients or increased operational costs. And like manufacturing, financial setbacks could have disastrous consequences for construction companies. A construction company can avoid this by factoring its unpaid invoices. The cash advance can be used to pay staff, complete ongoing projects and pay off debts.
For industries that rely on steady cash flows to sustain operations, factoring offers a quick and easy way to get an inflow of cash and stabilize cash flows. Not only does it provide money to pay vendors and staff, repair, upgrade or buy new equipment and to clear urgent debts, but it also helps businesses survive in tough economic times without relying on lenders.