Why You Should Be Using Invoice Factoring

Some business owners always feel stretched when it comes to cash at the end of the month. It’s not that they don’t make enough money, but that the money comes at the wrong time of month to help out with bills. For example, they have to cover rent, payroll, taxes, electricity and other overhead costs. What these business owners are missing is a way to stabilize cash flow. That’s where invoice factoring comes in.

Is Invoice Factoring Trustworthy?

If factoring makes you think of loan sharks or bill collectors, you’ve been watching too many Hollywood movies. These days, factoring is one of the most trusted, helpful, and comfortable types of financing there is. Large corporations use it. Hospitals use it. Small businesses use it. The list goes on and on.

Why do these businesses turn to accounts receivable financing? Because it’s simple, fast and flexible. With factoring, you can get capital right away when you need it instead of having to wait weeks or months for the money to come through. Often, you get money with 24 hours. So, if you notice a great deal from one of your suppliers or equipment providers, you can finally take advantage of it instead of wishing you had the money.

Are the Benefits Worth the Higher Interest?

It’s true that overall, factoring has a higher interest rate compared to long-term financing such as SBA loans or term loans. But that’s like comparing apples to oranges. SBA loans are great for huge purchases such as real estate or heavy machinery, but it can take months before you find out if you were approved or not. On the other hand, invoice factoring can give you capital in hand almost instantly, for the exact amount you need.

Another benefit of factoring is that it doesn’t involve debt.  Your credit score doesn’t suffer because there are no payments to make. It’s just a cash advance on your own invoices. You get most of the value of the invoice immediately instead of waiting, in exchange for a small percentage of the invoice’s total value.

Is Factoring Easy To Use?

Many businesses use factoring for all of their invoices, but you’re not obligated to do that. You can use as many or as few invoices as you want, whenever you want. The reason outsourcing the AR department is popular is because it lets you focus on more important parts of business, such as customer service and sales.

Getting started is simple. Approval mainly depends on whether your customers have a history of paying on time. Your personal or business credit score isn’t important.