Owning a small business in today’s economy certainly has it’s own set of challenges that business owners didn’t really have to deal with 20 or 30 years ago. While it used to be commonplace to go to the bank when you needed a loan for a business, this is no longer the case. Many small business owners are surprised to find that they can’t get a loan from the bank, even if they’ve been in business for a while. Having a few dings on your credit record or not having enough credit can greatly impact your ability to get a bank loan, and for the majority of small business owners who are working hard to get ahead, it’s time to look at a different approach – one that includes receivables factoring.
How receivable factoring works?
With receivables factoring, you sell your accounts receivables, or your invoices, at a discount off of the total value to a factoring company. The company pays you a percentage of the invoice up front and then pays you the rest (minus any service fees) once they collect on it. It’s similar to a consumer using a credit card to make a purchase, where the credit issuing company essentially pays the merchant directly for the item, and then the consumer pays the creditor once the statement is due. While using a credit card is a different process, the concept is very similar to invoice factoring.
Invoices don’t get paid early in most cases
When a business owner extends credit to another business or to a customer, they are basically offering credit in the form of 30, 60 or 90 days, depending on the invoice terms. While the invoice might be paid early, the chances are higher that it won’t be paid early and in some cases, it may not be paid at all. As a result, instead of bumping up your cash flow with customer payments, you’ll be waiting around for months for the money to appear.
Don’t leave the overall health of your business to chance.
When you need to create consistent growth within your cash flow, invoice factoring can help you get back on top. Use the money to expand your business, refresh your inventory or do anything else that your business needs.
