Businesses that use factoring companies need liquidity – and they often need it yesterday. If you’ve thought about ways to boost your cash on hand, consider the value of your outstanding invoices – which is what factoring is all about. Here is a list of reasons why this might be the right solution for your needs.
Factoring gives you a steady cash flow
Do you have a steady stream of orders to customers who want to wait 30 or 60-day terms? Are your orders growing in size and number, while your cash on hand to help you fulfill those orders is shrinking? Invoice factoring can help you balance the disparity and have the cash you need to grow.
Cash helps you expand
Are you ready to grow? Do you need more equipment? More employees? More square footage? Factoring the invoices you have out there can make that possible as well.
Work around maxed-out credit lines
If you’ve borrowed to the hilt, then your next solution is to take advances on your invoices. Otherwise, you’re looking at cash flow drying up – and business disaster.
Deal with slow payments from customers
Even if you have agreements in place, some customers may decide to wait as long as 90 or 120 days to satisfy their invoices, because they’re doing what’s best for them and not for you. With invoice factoring, you can receive your advances within a day or two of submitting the invoices.
Grow even when the banks turn you down
If your business credit can’t garner you a loan from a bank, you’re in luck, because factoring companies don’t use credit as their primary determining factor. Instead, they use the amount of invoices that you have coming in and the creditworthiness of your customers. So whether the issue has to do with tax liens, poor credit or other problems that have the banks saying no, invoice factoring can bring the cash anyway.
Recover from the problem of the bank work-out
There are some banks that will move away from you when they see the risk of doing business with you increasing. That can send you into instant cash-flow disaster, as you don’t have what you need on hand to run your business. If this is happening to you, a factoring company can step in and facilitate the transition from financing to factoring.
Factoring can help you survive bankruptcy
A company in bankruptcy can have real trouble getting financing from banks or even private lenders. However, invoice factoring can help you bring in cash even after filing your bankruptcy petition, because the factoring companies look at the credit of your customers, not your own. If your customers have solid credit, you still get the cash you need so that you can get things going back in a positive direction. We want to see you and your business succeed, and we provide connections with factoring so that you can overcome difficult business events that have happened in the past.
Factoring and Bank Loans and Business Lines of Credit
It is almost instinct for businesses to go to banks when they realize they need working capital. However, it can be hard to take out enough of a loan or line of credit to get the money you need for your growing business. Let’s look at some differences between financing through factoring and financing through loans or lines of credit.
If you go after a loan or credit line, you have to jump through a number of hoops. The bank checks your credit – which can end things right away, especially if your business has not had much time to establish credit. The application can take months to complete, and funding can take another month or two.
In contrast, receivables factoring requires just a few documents, and the approval comes from the creditworthiness of your customers, not your own.
Taking out a loan or line of credit also involves more risks than factoring. You have to pay principal and interest, and if you default, you lose whatever assets you put up as collateral. With factoring, you don’t have to make any monthly payments. Instead, you get an advance on your invoices, and the factoring company holds onto the rest until the client pays off the invoice, deducting your discount and any fees.
If your primary problem as far as cash flow has to do with customers who are slow making payments, loans and lines of credit can often represent just short-term solutions. It can be hard to get new loans because you still have the existing ones – and you’re still seeing the cash just trickle in because of your slow-paying customers.
With accounts receivable financing, you get the payment within a business day or two of sending invoices to the factoring company, so the cash flow does not get interrupted. This helps you grow your business and take care of your business needs today.
Finally, consider the advantage that there is no limit on the amount of factoring that you can do. As long as you have invoices to sell, you can take out an advance on it. That’s a lot more flexible than credit limits places on a loan or line of credit. So if you’re in an industry that features customers that pay mostly on 30- or 60-day terms, consider factoring as a way to turn invoices into cash.