How Invoice Factoring Can Solve Cash Flow Problems For Your Business
Invoice factoring is a way for you to convert your company invoices and future credit card receipts into immediate cash quickly. You sell these invoices or credit card receipts to an invoice factoring company in return for immediate cash.
You may decide to factor your invoices for many reasons. Typically, companies use factoring to increase marketing and advertising, finance seasonal needs, reduce bad debt and improve credit rating, Offer extended credit terms to their clients, meet increased sales demands and more.
Factoring, unlike a traditional loan, does not create company debt. You will not be required to make monthly payments. Your credit line will not be determined by your company's financial strength or your personal credit. Your credit line will be determined by the financial strength of your customers and the size of the invoices you hold.
Every business needs cash to grow. In fact, sometimes the faster a business grows, the more its cash flow becomes a concern. If you've tried to obtain a bank loan recently, you know the banks move slowly, if at all. The approval process is burdensome and most applicants don't even end up qualifying for a bank loan.
As a business owner, you probably don't have time to write a business plan and assemble the endless piles of paperwork the banks demand, let alone time to sit around waiting months and months while bank committees consider your request.
A factoring company will request a little documentation (e.g., copies of your invoices) from you and may have a few follow-up questions. Once you are approved, you choose the customers and invoices you'd like to sell. The company will then advance the funds to you and you can use them immediately to pay rent, purchase supplies, meet payroll, take advantage of expansion opportunities, or any other way you choose. When your customer ultimately pays the invoice, they will collect back the money they gave you earlier and send you any excess funds.
If you have customers that take 30+ days to pay your invoices or your business accepts credit cards regularly and you need cash soon, factoring can help you. There is simply no need to borrow from a bank to get the cash you need - factoring invoices can help you without all the time and difficulty involved in applying for traditional bank loans.
Generally speaking, businesses in most industries will qualify for invoice factoring. The main requirement is that you sell to financially sound customers on a regular basis, and do so on open credit terms. Some of the more popular industries for factoring include: trucking and freight, temporary staffing, medical, oil and gas, distributors, government contractors, construction, and manufacturing.
Invoice factoring is a great way for any business to remedy cash flow issues quickly. Many companies offer guarantees of funding in as little as 24 hours time. Typically, in situations where immediate funding is not required, you should expect the approval process to be completet in about 5 to 7 days. If your business needs money to grow, buy equipment, or even pay bills; invoice factoring may be the best solution for you.
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