Start-up and growing businesses frequently need to evaluate funding options when cash flow issues arise. As any experienced business owner knows, steady cash flow is essential for an established business. Invoice factoring or accounts receivable financing is an excellent way of supporting businesses stay on top of their cash flow.
Established businesses regularly have cash on-hand or available financing to take advantage of growth opportunities or manage cash flow issues. However, small and startup businesses do not have the luxury of relying on traditional financing. Thankfully, invoice factoring is a great source of funding for small businesses.
A factoring firm does three basic things:
- Purchases your invoices and sends payment to you.
- Collects the receivables unpaid from your customers.
- Remits the reserve to you, less charge-backs and charges.
Your customers can hold payments for 30 to 90 days that can consume up your cash quickly. Factoring firms provide you the amount in advance so that you are not waiting. With invoice factoring, you can get your payments immediately for rendered services or delivered goods rather than just looking to your customers and waiting for cash from them.
Improves Cash Flow
“Cash is the necessary element for running and maintaining any business”. It is a common term in the business world and it is true! Cash provides a business real solidity. It is no longer just cash in the bank.
Good cash flow ensures a business will be feasible for the long-term. Cash flow makes it possible for businesses to grow and sustain the ebbs and flows of sales volumes and operating expenses. Factoring firms facilitate the transition from being an instable startup to a solid thriving business. Accounts receivable financing is not a new funding source, it has been around for years – it has helped millions of small businesses grow and turn out to be successful.
Why Invoice Factoring
Apparently, instant cash flow is a huge benefit of accounts receivable financing; however, there are other objectives to use accounts receivables for your small business financing.
A Perfect Alternative to Traditional Funding
Small businesses and often do not meet the requirements for a bank loan or line of credit. Accounts receivable financing helps small business that don’t qualify for traditional financing due to bad credit, lack of collateral, or limited financial records. Factoring additionally does not require an exceptionally comprehensive business plan.
Collecting cash from customers requires workers and time, which cost money. An account receivable financing firm plays this feature when they invoice your customers. You can concentrate on growth, creativity, and new products while the accounts receivable firm does the legal work in collecting the payments.
Customer Credit Services
Most factoring firms use information from credit bureaus to check your customers’ credit when setting up your account and factoring more invoices. They can check credit on your current customers in addition to new or potential customers. Credit services can help you avoid bad debt losses due to credit reasons.
A traditional loan is an excellent way to build credit, but it also indicates the business is taking on debt. Working with accounts receivable firms is one of the best options for improving cash flow and funding start-up activities without going into debt. While debt is not necessarily bad, sometimes it is useful to avoid it.
Achieve Business Growth
One of the obstacles that new business experience is an inability to take benefit of growth opportunities. Accounts receivable firms offer the cash required to make purchases and expand alongside strong market trends. Loans take time to acquire, but accounts receivable financing has a setup time of only a couple of days.