For many businesses, invoice factoring is a worthy expense that gives them enough cash flow during critical times of growth or change. But for companies that haven’t made use of this powerful funding solution, or for those who choose to skip factoring and continue waiting to collect on open invoices, there are a number of costs and challenges that tend to arise.
Here are four risks that can cost you if you decide NOT to factor your invoices:
1. Increased risk and uncertainty
Even the biggest companies sometimes run into payment delays — whether they’re waiting to receive payment from a client or need a little extra time to fulfill their own accounts payable. And these delays are often felt throughout a business, resulting in a situation where planning is put on hold and innovation is stifled.
2. Penalties and fees
Having a stack of invoices won’t pay the bills, nor will it suddenly be considered valid currency for the tax man. With this can come overdraft fees, late fees, tax filing penalties and more avoidable expenses.
3. Missed opportunity cost
Have a great prospective customer but no money to fulfill their order? Chances are, they won’t have the option (or patience) to just wait a little longer. Likewise, you may encounter a potentially lucrative customer that requires longer payment terms than normal. But if you don’t have enough working capital on hand, you might have to turn down a long-term relationship because of a short-term struggle.
4. Lost discounts
Often on the supply side, the ability to buy in bulk or take advantage of a timely discount translates into long-term savings. When cash is tight, buying a year’s supply of something may not be the priority when compared to say, paying employees. Though this may not be a noticeable difference to start, these small bulk savings can start to add up.
Potential expenses like these can bog down a business’s growth, disrupt forward momentum or growth, and ultimately force hard decisions such as having to lay off staff or close areas of the business. However, making the choice to factor your invoices can be a wise way to eliminate some financial insecurity and pave a more reliable path forward.
Interested in invoice factoring, but aren’t quite sure where to start? Check out our Invoice Factoring Guidebook.
If you’re ready to learn more about factoring for your business, contact us today.