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It has always been a
challenge for small business owners to obtain bank
financing. It’s especially true in today’s economy
that most small businesses just can’t qualify for
conventional business loans. The requirements can
be a significant barrier: the company must have
sizable assets, years of profitability and audited
financial statements.
A majority of business owners do not consider
other forms of business financing because they
don’t know that
there are
alternatives to a traditional bank loan or an SBA
loan. Many times they give up any hope of
obtaining financing when they get turned away. The
truth is that many times those alternatives can
work better that conventional financing.
The biggest challenge for nearly all companies is
their Accounts Receivable – the 30 to 60 day wait
until the invoice is paid. During this waiting
period, the Accounts Payable becomes due,
employees and suppliers need to be paid. This
leads many businesses into a “cash
flow crunch”. While this is fine for large,
well capitalized, companies with adequate banking
reserves, it is a significant challenge that many
business owners face every day.
There are many ways to maintain a positive cash
flow when growing your business and dealing with
Accounts Receivable issues. One popular way to
increase cash flow is
Invoice
Factoring. Invoice Factoring (also known as
Accounts
Receivable Financing) is the practice of
selling your accounts receivable (invoices) at a
discount to another company. You get the money
from the company that you sold your accounts
receivable to and they become responsible for
collecting on the invoices.
The reason many businesses make this move is to
ensure the continuous flow of cash to the
business. Essentially, businesses who use invoice
factoring are focusing on having most of the money
now rather than all of it later. It can take time
to collect on an invoice, so when a company
finances its accounts receivable, they are getting
their money faster and without the hassle of the
collection process.
With small businesses, it is even more important
to free up
working capital through factoring. The money
can be invested into new equipment, used to pay
bills, or used toward payroll. Of course, the
alternative is to chase the customer for the
invoice payment and defer everything else while
the money is tied up in the collection process.
As you can see, invoice factoring provides the
needed working capital to meet business expenses
without worrying about when your client will pay.
It’s the
business loan alternative that provides
businesses with predictable cash flow and
positioning them for growth.
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