How To Succeed in Business With Invoice Factoring
Financing your invoices, also called factoring, is a powerful way to get funding for your business. Rather than taking on debt or making equity sacrifices, you sell your invoices at a small discount. This gives you money now to invest in your business. Any business that needs to speed up its accounts receivable collection could benefit from this unique form of financing.
Are You a Good Candidate?
Companies of all sizes use invoice financing as a way to bring in more capital sooner. If you invoice your customers and give them time to pay, you may be a candidate. This option is available even to businesses that may have struggled with their cash flow in the past. Some businesses finance their accounts receivable to help fund delivery on invoices such as ordering supplies.
Do You Find Yourself Needing Funding?
You may be surprised how easily you can qualify for financing. The decision is based primarily on your customers’ credit. Ask yourself these questions to determine if this is a good fit for your business:
- Are your customers’ credit scores strong?
- Do you ever receive late payments?
- Could you benefit from not waiting to get paid?
- Is your company free of major legal or tax issues?
Financing your invoices may help you if you answered yes to the above. This is a common practice used by even the largest companies.
Do You Have Other Options?
Typically, businesses have two major alternatives to financing their invoices: equity investments and debt. Equity investments require that you sacrifice some ownership, control and future earnings of your business. This is a common way to raise capital, but it isn’t a good fit for every company.
Debt is another way to get some funds. Not every business can easily qualify for a good loan. Additionally, you can only take on so much debt without becoming over-leveraged. This can result in stunted cash flow.
Are You Ready To Factor?
If you want to factor your invoices, you should understand the process. You sell the invoice to a financing company and they collect on the payment. Depending on your contract, you may be on the hook if your customer doesn’t pay. However, some providers offer non-recourse options. Additionally, you will receive a little less than your invoice is worth. That is how the provider makes its money.
Does factoring sound like a good option for your business? Learn more and see if you are a good fit.
