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.