Invoice factoring is a clever alternative to bank loans. For a while, bank financing was the most common way that businesses generated cash when they needed it. If the business had been operating long enough and had good enough credit, they had a pretty good chance of being approved and obtaining a bank loan. Though the process wasn’t ever the easiest, if you met the criteria, you had a good shot at receiving the funding.
These days that’s not really the case. It’s proving to be harder than ever for businesses (especially new and small sized) to qualify for traditional loans. Even those with good credit are finding it difficult because so many other factors go into bank loan approval nowadays. Even though bank financing might not be an option anymore for many businesses, invoice factoring still is.
Invoice factoring allows businesses to receive money without any debt. They can generate cash quickly without depending on a loan. Factoring is a pretty simple process. A factoring company will purchase a businesses invoices at a discounted rate. The amount of money that a factor will give you depends on a few things, such as how old the invoice is, when it’s due and the credit history of the client receiving that invoice. Keep in mind this all varies depending on the factoring company.
After the factor purchases the invoices, they then take on collection responsibility. All of the payment arrangements and conditions will stay the same, but the money now goes to them, because they technically advanced you the bulk of the invoice. After the factor collects on the outstanding invoice, they will return the rest of the money owed to the business, minus a small percentage as a service fee.
Invoice factoring is a great alternative to traditional financing. It allows businesses to generate cash flow quickly, without the hassle of applying and waiting for a loan. Since the requirement for a bank loan are more than ever, some businesses are left not knowing what to do. If you’d like to learn more about what invoice factoring can do for your business, check out the rest of our blog or contact us today!
Post written by Senior Copywriter “Nikki Wakefield” of CoreFund Capital, LLC.