One of the essential factors of a business with growth potential is adequate cash flow, and sometimes that's hard to come by for new businesses. Start-ups, garage businesses, and brand new companies don't always have the cash reserves on hand to take advantage of growth, as well as to cover standard overhead costs. Invoice factoring can alleviate cash flow problems by providing quick access to accounts receivables.
What is Receivables Factoring?
Receivables factoring helps small businesses handle growth when bank financing isn't available. Receivables factoring is a process where a business sells its invoices to a factoring company and gets paid for those invoices immediately, rather than having to wait until the customer actually pays.
Factoring Improves Cash Flow
Just as a first-time home buyer may have some hurdles to jump when getting a mortgage for the first time, the same holds true for a fledgling business that doesn't have a significant credit history. Getting a bank loan as a business that's only been around for a few months is almost impossible unless the business has a high credit rating and a couple years of positive earnings.
Likewise, businesses with bad credit find it difficult to qualify for loans, particularly when they have low cash flow. Factoring services are a viable option for businesses that can't get a traditional bank loan because of poor credit history or a lack of experience. Keeping up with customer demand means having cash on hand.
Invoice Factoring Provides Flexibility
Factoring services are one of the best ways to find financing without having to deal with a ton of rules and restrictions. Securing a bank line of credit is one way to improve cash flow, but the application process and the red-tape make it very difficult for many businesses.
Invoice factoring companies offer struggling businesses a lifeline, but it's also a quick and hassle-free option for businesses that aren't struggling and don't want to jump through hoops with a bank. It's the best option for businesses who need funds but don't want to incur debt as they would with a traditional bank loan.
Factoring Has a Long History
The process of using a company for accounts receivable factoring isn't a new concept. Although the process has gained in popularity since the end of the Great Recession, it's actually a process that's been around for centuries. Europeans used factoring services in the 1400s, and early settlers in the New World also used the process in early banking and business in the fledgling colonies. Today, banks have not yet "loosened their purse strings," which has meant increased popularity of this established and reliable option.
Factoring Speeds your Collections
In what might be the most beneficial part of working with factoring companies, the funds are transferred much faster than with traditional bank loans. One of the hardest parts of getting by as a small business is waiting those 30 or 60 days to receive payment from a client. A successful business with an active slate of customers and impressive sales must still wait for a client to submit payment when invoiced.
Like all business finance decisions, it's important to understand the differences between traditional bank loans and invoice factoring. The benefits of using factoring services are worth investigating by any company who needs to increase cash flow without going into debt.
FactoringClub.com is the premier source of information for invoice factoring companies. With factoring companies in most major cities and states, FactoringClub helps you find the right factoring company. Search our listings or call our factoring experts at (866) 748-7111 for assistance.