If you’ve ever used accounts receivable financing to smooth over cash flow or raise working capital, you know how convenient it can be. What you might not realize is that you have more options for factoring than just financing all your invoices. There are lenders out there who will let you take out a single-invoice advance, you just need to find them. Typically, they have a slightly different cost curve and advance model, but this is because single-invoice financing requires the lender to take a greater risk than a large pool with many invoices would.
In the larger pool, it takes many failures of payment to make the advance unprofitable, but when you finance a single invoice, all the lender’s eggs are in one basket. Sometimes this is handled by changing the usual no-recourse nature of financing receivables, and that’s reasonable. Other companies maintain that policy but price for the risk. Either way, there are some splendid benefits to financing a single invoice when you need some working capital.
Choose Which Accounts You Outsource
It’s very common for companies to cultivate a pool of clients that includes both those who always pay immediately upon receipt and those who have a predictable delay. Occasionally, there are also customers who have payment problems. Factoring just one invoice allows you to wait and see whether payment is coming right away before incurring the fees involved in an advance. If you work with companies that offer no-recourse models, it can also be a way of getting payment insurance when you aren’t sure if a customer will pay. Since no-recourse advances are not always on the menu with a lender, you need to do your research before using an advance as a cash recovery tool and not a method of financing.
Get Quick Cash As Needed
Often, the working capital you need is a lot smaller than the advance available when you finance all your invoices. Since most factoring agreements don’t leave you with a way to pick and choose which invoices you want to finance, that can mean an inconvenient over-purchasing when it comes to financing costs. When you can finance just the invoice or invoices that let you get the money you need, that bottom line is contained. As a result, many companies opting for this method find that single-invoice factoring lowers their overall costs for financing even if it has higher per-invoice financing rates. That knowledge makes a huge difference in how you plot your financial strategy.