Cash flow problems are well known to small businesses and are often due to late payments. Invoice factoring offers a solution to those frustrating situations where you’ve already provided products or services, but can’t bring in more business until you’re paid for that past work.
With factoring, you can use outstanding invoices to fund immediate business needs. This allows you to purchase inventory, equipment, and materials, or pay your sales staff, to keep your business going (and growing), without waiting for customers to pay you. Here we’ll explain invoice factoring and its benefits for small businesses.
What Is Factoring?
Factoring is the process of selling your receivables at a discount. You select the “best” unpaid invoices for evaluation by the factoring company. The lender or finance/factoring company evaluates your customers, rather than evaluating you/your business. Your customers’ creditworthiness determines whether the factoring company will purchase the unpaid invoices from you.
Advantages of Invoice Factoring
Major benefits of factoring include:
- Fast and simple: You can receive funds as quickly as the next day, with a simple application process.
- Avoid taking on debt to pay your business’ bills: You won’t have to qualify for a loan or take out a credit line.
- Collateral is not needed: You’re not risking business assets with this funding method.
- Bad credit is ok: If you have no credit history or a poor credit score, you can still get funds through factoring, provided your customers have good credit histories and a reputation for paying their bills.
- Approval is based on your customer’s good credit rating: Applying is simpler than the typical business loan or credit application process. Lenders will evaluate the quality of your customers, and if those businesses are solid and low risk, the lender will advance you the funds.
- Receive up to 85% of invoice value: You’ll be able to receive most of the funds for outstanding invoices immediately.
- Factored invoices will be paid directly to the lender: With invoice factoring, the lender (factoring company) will now collect payment from your customers on the invoices. You and your staff won’t need to follow up with customers to request payment. You can concentrate on running your business.
Solve your cash flow problems with invoice factoring. Contact the experts at Ambition Funding Solutions today.