Selling accounts receivable to a third-party like Catamount Funding converts unpaid invoices into almost immediate cash

Covering day-to-day operations, let alone looking to expand a small business, often requires working capital – enough funds to get through the month and stay on track. When money is locked up in unpaid invoices because they are due in the future, that potential asset isn’t useful. Cash flow is a requirement to stay in business and can be a stressful worry when funds are low.

The main difference between factoring and a loan is that factoring accounts receivable does not add debt to the company’s balance sheet.

How Factoring Helps Improve Cash Flow

Payments from clients often lag behind the delivery of products or services. This could be anywhere from 30 days to 3 months, typically. In addition to that agreed lag time, some clients may then be late with their payments, particularly if the company has poor receivables management. Keeping track of the necessary paperwork and following up in a professional manner takes time and effort. Factoring provides almost immediate cash, eliminating or greatly reducing that cash flow gap. In addition to being able to use the funds, the company that factored their invoices no longer has to spend time managing the unpaid invoices, as the ownership of following up on the invoices becomes the responsibility of the factoring company. Staff can then be freed up to move away from accounts receivable management and dedicate their time to other tasks. As part of our AR services, we conduct credit checks and reviews on new and existing customers to help clients extend terms wisely and avoid risky receivables. This added layer of protection helps reduce bad debt and maintain a healthier cash flow.

Affordability – No Interest Payments

Interest payments are not a consideration when factoring unpaid invoices. This is because factoring is a fee-based service, rather than a loan. For startups or businesses that are relatively new, traditional bank loans may not be an option, so factoring can be an affordable, predictable, and repeatable solution. One other big plus about factoring with Catmount Funding is that not all accounts receivable need to be factored; the client chooses which unpaid invoices are included.

Supporting Growth Opportunities

Small businesses may have a plan to grow over time, and sometimes initiatives and opportunities present themselves unexpectedly. Either way, when looking to expand operations, in order to accept larger orders, or to add an extra vehicle to the company fleet, to bring on extra staff, or to diversify the products sold, improving cash flow and having funds readily available supports that growth. Long customer payment cycles can put a strain on the business prepared to offer those terms, however that marketing strategy can help build trust with existing clients and be the differentiating factor between winning a contract or losing it to a competitor.

Financial Predictability and Flexibility

It’s ironic that for businesses that allow clients a period of time to pay their invoices, the more successful they become, the more funds are accumulating as accounts receivable; therefore, that money cannot be used to finance the next orders or fulfill payroll. The factoring of unpaid invoices can scale up or down depending on the rate of sales, helping to sustain a growth trajectory. Catamount Funding is a partner in business, helping clients stay financially healthy, minimize their credit risks, and get paid faster.

Find out more about Houston Accounts Receivable Management and Houston Invoice Factoring Services today.