Accounts receivable factoring, or financing, is a very beneficial, long-time practice used for small businesses that are seeking an improvement in cash flow or the release of working capital for business ventures. The reasons are really numerous as many businesses are finding a reason to take advantage of invoice factoring for the better of their operations day-to-day. There are three main benefits to most small businesses that use factoring:
What's in this article:
- Release of working capital already earned.
- Relinquishment of collections.
- Quick financing.
Choosing the best factor for your business factoring needs will ensure that you are able to reap these great benefits from the use of the process.
Release of Working Capital
When you have a lot of unpaid invoices, you are really sitting on working capital that has been earned, yet you cannot use it. Factoring is a great process to release this working capital you have already earned. These factors purchase your accounts receivable for a discount and you are able to use this working capital almost immediately.
Relinquishment of Collections
Having many collections to monitor and deal with can sometimes take away from your other business functions that are quite essential to smooth operation. When you use invoice factoring, you are passing off these collections to the factor for a discount and will be able to focus more on the other aspects of your business.
The best benefit of accounts receivable factoring is that it provides a quick financing option that is painless and doesn’t involve trying out business assets for collateral. Within only about 24-48 hours you can receive the advance which can be up to as much as 97% of the amount you sold your receivables for. No waiting for bank approval and no having to fax a million documents.
Factoring is a great process that provides businesses, especially small businesses in various industries including construction, with much-needed working capital without the ultimate price being the cost to the business. You have earned the money and factoring gives you the chance to get that money you earned without waiting on outstanding invoices to be paid.
Who Can Best Benefit from Accounts Receivable Factoring?
There are many small businesses out there these days, with many business owners sparking up a new business idea every day. There are countless opportunities for big-time businesses, but when it comes to funding for small businesses, especially those without high credit and a great deal of borrowing history, there can be a brick wall when seeking funding. For this reason, invoice factoring is available to ensure that even these small and brand-new businesses are able to obtain funding for steady cash flow and better financial management.
How to Get Invoice Factoring
There are many accounts receivable factoring providers that will ensure that you get the most for your invoices. Small business owners are able to utilize these providers who will purchase invoices of the business, basically purchasing the money that is due to the business. The business owner is then able to utilize the cash immediately, without having to wait for client payments which could be anywhere from a couple of days to a couple of months.
When to Get Invoice Factoring
There is no particular way to tell if and when a business needs invoice factoring; however, the opportunity is optimal in times where the business is in need of instant funding. Obtaining a bank loan or other type of institution-given loan may be impossible for many small business owners if there isn’t at least a 720 credit score and a great deal of history in lending. New business owners are definitely at a disadvantage when it comes to borrowing, leaving many ventures unfunded without the help of invoice factoring.
Without having to have a specific credit score, and with the ability to sell money that is owed to the business, these business owners can get invoice factoring services whenever there is a need for cash. Invoice factoring is a very simple process that has been in practice for many years but is now becoming a more common method for business owners to obtain cash. Even larger companies are beginning to turn to invoice factoring as a method of avoiding low cash flow due to economic stress.