Running a successful small business inevitably requires overcoming many challenges, quite a few of which might not commonly be faced by larger competitors. The struggles related to cash flow that so many small companies experience on a regular basis, for example, tend to be much less familiar to larger ones.
At the same time, small businesses will often find that tools larger companies use to resolve their own issues can sometimes be out of reach, as well. That can make it seem as if certain issues might be impossible to overcome, but this rarely turns out to be the case.
A Flexible Financial Solution for Businesses with Outstanding Invoices
Most companies that do business with others allow a certain, agreed-upon amount of time for payment as a matter of standard policy. Waiting thirty or sixty days to be paid might be what it takes to compete with others in an industry, but it can make for some difficulties, as well.
Larger businesses sometimes enter into long-term agreements with specialized service providers known as “factors.” Under the terms of such contracts, a factor will have the right to buy any future invoice a client might send to particular customers of its own. By establishing a baseline of revenue to come, agreements like these can make a mutually beneficial arrangement possible.
A Better Style of Factoring for Smaller Companies
While this regularly proves to be a satisfying and helpful option for larger companies, it can be much less so for smaller ones. Given that factoring any invoice will always cost at least something, being locked into a long-term agreement can make it more difficult to succeed with tight margins.
Fortunately, there is another option that often makes more sense for smaller companies in such situations: So-called “spot factoring” allows for invoices to be turned into cash individually and as needed, instead of every one sent to particular clients being covered by a contract.
This quite often makes for an especially suitable style of small business financing, meshing perfectly with the needs typical of so many smaller companies. Even when it sometimes seem as if running a small business is especially challenging, resourcefulness and understanding the options therefore often pays off.