Small to mid-size businesses are continually faced with waiting 30 to 60 days to get paid on their invoices, which really puts a strain on their cash flow.
Where large companies can usually afford to wait it out, small and mid-size businesses can’t. This can have a serious affect on managements’ ability to pay the company bill or meet payroll. A cash flow shortfall can also affect the business’ ability to fulfill orders because the cash is tied up in unpaid invoices.
How can you get business cash without a loan?
Invoice factoring, also known as accounts receivable factoring, is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. This form of financing is a valuable mechanism to turn your invoices into immediate cash, enabling you to fund your business operations. It is not very well known, but invoices from strong credit worthy commercial clients are excellent collateral, especially for factors. Most banks will not accept accounts receivable as collateral, but invoice factoring companies are more than willing to provide you with financing based on them. In most cases, a factoring provider can provide funds when a commercial bank cannot.
Why use Invoice Factoring?
The reason many businesses make this move is to ensure the continuous flow of cash to the business without sacrificing equity or incurring debt. Essentially, businesses that use factoring are focusing on having most of the money now rather than all of it later. It takes time and effort 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.
In today’s struggling economy, freeing up working capital through factoring can prove to be vital. Access to immediate cash 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.