Improving Cash Flow with Factoring
If you’re the owner of a small business and you’re looking for ways to keep your cash flow steady this month, you may want to consider factoring. If your company is new, has shaky credit history or does business overseas, this could be a great option when securing a traditional loan is difficult or impossible. In this type of lending, you simply sell your accounts receivable at a discount to a specialized type of company, sometimes referred to as a factor, which then gives you an advance on the invoice amount after making sure your customer has good credit history. To learn more about how working with a factor could help improve your business’s cash flow, read on.
You Get Quick Funding
As all business owners know, it may take 30 to 60 or even 90 days after sending a customer an invoice to receive payment. In the meantime, however, you still need to be able to cover your regular expenses, pay your employees and fulfill more orders. Whereas traditional lenders can take weeks or months to approve you for a loan, a factor can often get you the funds you need within days or sometimes even hours! Better yet, the advance amount can be anywhere from 70% to 90% of the invoices, meaning you can quickly get the cash you need to keep your operations running smoothly.
It’s Good for Young Businesses
If you haven’t been in business for very long, it can sometimes be difficult to secure traditional bank loans. With factoring, however, your business credit score doesn’t matter so much as your customers’ creditworthiness. This means that if you have little, or shaky, credit history, you can still work with a factor to get the cash you need.
It’s a Convenient Short-Term Solution
While this is a convenient service, the interest rates can often be higher than for conventional loans, so you’ll want to check any agreements thoroughly before committing. Be sure to also ask about any potential additional fees. Selling your accounts receivable works best as a short-term solution to improve your cash flow when you need it.
If your business could use steady cash flow to get through the month until your customers send their invoice payment, you may want to consider factoring. Though you’ll want to check interest rates, working with a factor could provide the short-term solution your business needs. With this information under your belt, you can confidently make the right decision for your business’s financial situation.
