How Invoice Factoring Can Help You Navigate Inflation

After peaking at over a nine percent rate, inflation has improved quite a bit recently. However, the impact of rising inflation is still being felt by small businesses across the country. On this page, we’ll walk you through some of the challenges small businesses face due to inflation and how invoice factoring can help you overcome them.

How Inflation is Impacting Small Businesses

To understand how factoring helps businesses combat the effects of inflation, we must first cover how inflation impacts small businesses.

The Cost of Goods and Services Are Up

Goods and services that could be purchased before the pandemic for $100 now require $119.27, Bloomberg reports. While some increases are expected, this hike outpaces growth seen in the ten-year span preceding the pandemic. Around 40 percent of small businesses say their goods and services costs continue to rise, Census data shows.

Consumer and Commercial Spending is Down

It doesn’t matter if you run a B2B or B2C company; odds are that your customers are spending less. Nine in ten consumers are cutting back, CNBC reports. The greatest hits are in discretionary spending, with items like clothing and dining out on the chopping block. Meanwhile, seven in ten small businesses are making cutbacks, per Controllers Council data. Roughly half have either already delayed or reduced capital expenses or plan to; Two-thirds are sourcing new vendors or plan to.

B2B Payment Delinquencies Are Increasing

In all, 55 percent of all B2B invoices are overdue, up from 47 percent last year, according to Atradius. Bad debt also impacts nine percent of all credit-based B2B sales. This represents a three percent year-on-year hike.

It Costs More to Borrow

The current federal interest rate has climbed five percent since the pandemic. That means borrowing is much more expensive and is often cost-prohibitive. But, perhaps what’s more worrisome is that small business credit card spending has increased in recent years, as Fox Business reports. Around 30 percent carry credit card debt, which typically leverages a variable interest rate. This means costs to carry existing debt climb alongside interest rate hikes, leaving many business owners trapped by mounting debts.

It’s Difficult to Qualify for Traditional Financing

As lenders attempt to shield themselves from risk, they’ve cut the number of loans given and raised the bar to qualify for funds. Small business lending is down 16 percent year-on-year, according to the Small Business Lending Survey.

It’s Stunting Business Growth

Expense increases and revenue decreases, paired with limited access to capital, have made it difficult for small businesses to grow. More than 40 percent say they’ve lost potential business opportunities as a result, Xero surveys show.

It’s Difficult to Make Projections and Budget

Nearly half of all small business owners say they’ve experienced an extreme or high impact from inflation on their cash flow, per Xero. These fluctuations make it incredibly difficult, if not impossible, to project cash flow and budget.

Business Owner Stress is Increasing

Business owners have had to resort to drastic measures to make ends meet. In all, 45 percent have skipped paying themselves at least once. Not surprisingly, 58 percent say cash flow issues have negatively impacted their personal well-being. More than three-quarters report stress and anxiety, while two-thirds say they’ve caused sleepless nights.

How Invoice Factoring Can Help You Navigate Inflation

Invoice factoring is a process in which you sell an unpaid B2B invoice to a factoring company at a discount. The factoring company immediately pays you up to 95 percent of the invoice’s value. You receive the remaining sum minus a small factoring fee when your client pays. This unique model allows many small businesses to overcome inflation challenges. We’ll explore how below.

It’s Easy to Qualify for Factoring

Most businesses with B2B invoices qualify for factoring because it doesn’t have the same rigid requirements as traditional bank loans. You can get approved even if your business is newer or your credit score has taken a hit.

It Makes Cash Flow More Predictable and Budgeting Easier

Factoring accelerates payment on your receivables, so your business knows exactly how much money is coming in and when it will arrive. There’s no more worry about slow or late payments.

Moreover, your factoring company will run credit checks on your clients before you begin factoring, which can also fortify your business against bad debt.

You Get Funding without Debt or Interest

Rising interest rates can make it impossible to pay down revolving debt, which is why so many businesses are struggling with debt payments today. With factoring, there’s no debt or interest to pay back. Everything is taken care of when your client pays their invoice. This can help you avoid debt or even pay down your existing debts.

It’s Easier to Order Supplies as Needed

You can use your factoring cash however you like. Many small businesses apply the funds to ordering supplies or inventory. You can also use the cash to pay your vendors faster to cash in on early payment discounts or order more to qualify for bulk discounts.

Factoring Can Reduce Back-Office Burdens

Your factoring company collects balances for you, eliminating the tedious and time-consuming task of chasing invoices. Some factoring companies even address things like invoice preparation to boost efficiency and save you even more money.

Your Business May Grow

Invoice factoring companies provide working capital quickly, allowing you to accept larger orders or more orders and grow. You can also apply your funds to marketing initiatives to help you win the customers your competitors are turning away due to lack of capital.

Request a Complimentary Invoice Factoring Quote

Invoice factoring can help you address some of the most common inflation-related challenges small businesses face. However, it’s best to partner with a factoring company that understands your industry and can tailor their services to your needs. We’re happy to match you with one that offers expertise and competitive rates. To learn more or get started, request a complimentary factoring quote.