Many of you small business owners may not be aware of factoring and what it can do for you. As you find out, you may be thinking what a great new opportunity this presents for your business, but new it is not. Invoice factoring is an age old financial practice that has for many years been helping businesses obtain the shorthand capital needed for business ventures, growth, or basic working capital to stay above water. With the economy seeming to always be in a downturn, accounts receivable factoring could be the right answer for any cash shortfall.
So what is so great about receivables financing? Taking a look at the process will reveal the true benefit that can give a small business much more than a costly loan can. When you look at the long process of receiving a loan, you can quickly discover just why these small businesses are opting towards factoring for obtaining shorthand financing. There are very high interest fees, several other fees, and a strong look into your and your business’s credit when getting a loan. These things can make for an unfavorable experience in which you end up paying in the end.
Factoring, on the other hand, is ever simple and quick and will involve your invoices being sold to a factor in return for a percentage of the monies owed to you. You aren’t even under the scope here as these factors are looking at the credibility of your clients, as it will be your clients that eventually provide these factors with their pay.
Much like you would sit around for 60 to 90 days with unpaid invoices, waiting on the clients to pay, the factor takes on these accounts receivables and will collect on them in return for you paying them a small fee. There are many companies that will charge from as low as 1% to upwards to 10%, some even charging more but with an abundance of services.
These companies will most likely not want to buy all your invoices, so you are able to be selective, ensuring you are selling those that are truly valuable and won’t leave you with a debt in the end.