Many businesses experience difficulties with cash flow that make it necessary to obtain outside funding. A common and efficient solution is the method of alternative financing known as factoring, which has been used to strengthen financial situations for millennia. Here is some information about invoice factoring that will assist you in deciding whether it will meet the needs of your company.
The Basics of Factoring
Factoring your company’s invoices involves selling them to a financing company. You receive an immediate advance of approximately 85 percent of the value of the accounts receivable. The factoring company collects payment from your clients. When this has been accomplished, you will be sent the balance of payment minus a fee for the factoring service. This method of funding has become increasingly popular worldwide.
Benefits of Factoring
Factoring your accounts receivable is one of the quickest methods of obtaining the funds you need to strengthen your cash flow. Most factoring companies do not even require extensive financial background checks. You may have difficulty obtaining a traditional loan, but you can factor your invoices even if your business is new and you have not yet established solid credit history. As long as you have unpaid invoices from creditworthy clients, you can qualify for factoring.
Dealing with Misconceptions about Factoring
As an alternative source of financing, factoring works well not only for large companies but also for smaller ones. Some uninformed people have the impression that if a business requires outside funding that it must be failing. The truth, though, is the opposite: additional financing stabilizes and strengthens businesses. As for your relationships with your customers, factoring assists you with these. When the financing company takes over the time-consuming process of collecting professionally, you are freer to see to the needs of your clients and provide top-quality products and services.
For more advice on factoring as an alternative financing solution for your business, get in touch with Array Financial.