Invoice Factoring Benefits Renewable Energy Companies — How and Why

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Modern energy demands will cause an influx of renewable power companies. Many small businesses or entrepreneurs contract services like installing solar panels or building wind turbine parts.

However, finding footing in a competitive market is challenging when juggling countless unpaid invoices for services rendered. How can small businesses in the renewable energy sector expedite business growth while waiting for required payments?

Invoice Factoring Definition

Invoice factoring is one of the most powerful financing solutions for renewable energy companies, big and small. Operating with consistent cash flow during off seasons or in the first several years of opening is a balancing act, especially with the number of financing solutions available.

A third-party invoice factoring broker or company purchases unpaid invoices from a company and manages the collection process. It completes this for a small fee of 1%-5%.

Invoice factoring gives power back to businesses waiting in invoice limbo. They can get paid for the work they’ve already completed while continuing to obtain more clients, technologies, or employees.

Depending on the business needs, they could seek multiple types of factoring:

• Advance: The invoice factoring company pays for the invoices before receiving payment from the client.

• Maturity: The parties agree on a date that the third party will pay the invoice amount. This arrangement gives the company time to collect payment.

• Recourse: If the third party doesn’t receive compensation for a client, the original business must buy that back. Non-recourse arrangements force it to be responsible for this.

• Disclosed: Clients paying invoices will see the third party’s name on the invoice. In an undisclosed arrangement, this is not the case.

Why Would Renewable Energy Companies Do This?

Invoice factoring solidifies stability during any stage of a company’s life. New businesses can use invoice factoring as a debt-free solution to growth. Conversely, business loans often have contingencies on how businesses spend money or have high interest rates.

Invoice factoring companies do not distribute loans and have control over receiving payments, so partnering businesses have little to no stress over accounts receivable. The lack of pressure will cause the industry to skyrocket in the coming years — potentially reaching $4618.9 billion by 2031.

Factors also provide other services on top of collecting past-due payments. They can vet future clients by checking their reliability and credit history and communicating with renewable energy businesses and contractors about the likelihood they’re making long-lasting B2B relationships.

How Does Invoice Factoring Benefit Renewables?

The benefits of invoice factoring could create a more permanent force of renewable energy businesses and contractors. Navigating travel requirements, additional equipment, and marketing on top of other expenses and a slew of unpaid invoices could be intense. Instead, companies can obtain instant capital for creating the sustainable future the planet needs.

Instead of relying on bank loans, factors provide businesses with credit stability. Factors don’t need to know the company’s credit history — they check on the clients’ histories. Therefore, a budding business can rest assured its credit isn’t used for invoice factoring, protecting them from years of interest payments and potential late fees.

Additionally, because factors review clients’ histories, they can ensure a company only partners with high-quality, forward-thinking players in the sector for continued progress and healthy B2B connections. Small businesses need more than stability — they need legitimacy. Invoice factoring could increase a renewable energy business’s impact and standing in the sector because of its resilience and partnerships.

Unlike bank loans, agreements with factors are often simpler to obtain with fewer requirements. Because they agree to purchase the invoices, they are in complete control of following up with unpaid clients, saving companies countless hours of communication efforts.

Invoice Factoring Is an Asset to Renewables

Instead of relying on bank loans or years of collected savings, invoice factoring provides renewable energy companies with a service that could help them survive turbulent economic shifts and navigate inconsistent customers. Invoice factoring could be the hidden resource to debt-free success.

By Shannon Flynn