Small businesses need some extra cash from time to time, and sometimes it’s difficult to find exactly the right kind of financing. Fortunately, many companies offer funding through the means of invoice factoring. Especially for businesses who mostly deal with other kinds of businesses as customers, factoring invoices can be extremely helpful. Unlike looking for a traditional bank loan to get you over your financial hump, factoring doesn’t require you to borrow money and pay it back plus interest. This type of financial help benefits businesses that don’t have the credit rating for loans or other traditional types of funding.
Get Money Faster
When you run a business that requires you to wait for payment from your customers, it sometimes cripples your bank account when you need money the most. Factoring your invoices allows you to receive payment on invoices more quickly than you would if you waited for the customer to remit what they owe. Companies that offer to fund payment on invoices are called factors. They advance the cost of the invoice minus their fee in a very short period. The factor also runs a credit check on the company that owes on the invoice, and not for you or your business.
Avoid Approval Snafus
Especially for newer and less-established businesses, factoring can offer a great deal of help. Traditional lenders and bank loans usually have stringent requirements like the amount of time in business, business credit scores, and minimum amount of revenue generated. When you’re just starting in the business world, it’s practically impossible to meet all these kinds of stipulations. Factoring alleviates these kinds of pressures when it comes to approving funding. The factor checks the credit rating of the business that owes you money and looks at their ability to make payments rather than your business’s creditworthiness.
Compare to Other Kinds of Financing
Invoice factoring doesn’t always work for every business’s needs. If you choose to rely on this kind of funding source, you may be spending too much money in the long run. Factoring is great for a short-term financial need that isn’t recurring. It’s great for that seldom cash shortage or for making it to the next month. If your business needs a more long-term option, then you may want to explore other funding sources.
Factoring can be extremely helpful for small businesses. Fully research your options to see if it’s right for you.