Almost any business in need of working capital can benefit from invoice factoring. Unlike bank loans, factors do not put restrictions on business uses for which their funds are provided.
There are numerous ways factoring can help a business grow; here are a few.
- The most common barrier to businesses growth is lack of cash. If you’re facing a cash flow shortage during a certain time of the year (or an expected seasonal slowdown), you are not alone. Many companies face similar conditions during slow periods or sometimes at unexpected times of the year. This can be the biggest reason for an unnecessary pause in the businesses growth
- Selling your invoices is a proven and very effective means of providing your company with quick cash. If you apply for a business loan from a bank it usually takes months to be approved (or learn you’ve been declined). This can be a terrible waste of time during a critical period of potential growth. By using factoring you can generate funds immediately, which helps you grow steadily and smoothly.
- Companies who borrow money, as opposed to factoring their invoices, quickly face the burden of making monthly principal and interest payments to repay just a single loan. Over time this can slow down a company’s growth, and sometimes even put it on the verge of closing. If you take out loans instead factoring your receivables, you must be prepared to make regular monthly payments to the bank – for years – which in turn leaves you with less working capital to keep your business running.
- Factoring provides great flexibility. With loans you are required to pay a certain amount until the entire amount is repaid. With factoring, your customers repay the factor simply by paying their invoices, and you can usually stop factoring (and start again later) any time if you feel your business does not require immediate cash.
- How often do you worry about unpaid invoices? Waiting, calling, and worrying over potential collection issues, takes time and attention away from other important daily aspects of running a business. When using the services of a factor, you enjoy their professional collection experience and efforts which leave you time to run your business as you know best.
Invoice factoring is an amazing tool that has helped many, many businesses grow over the course of time. It is an excellent alternative to bank loans, it is quick, and it does not burden your company with debt. Want to grow your business? Think “factoring.”
Guest Post by Reed Corry
Managing Member and owner of Allegiant Business Finance, LLC. He founded Allegiant with Jana Blackburn, Operations Manager, in 2003. His background includes experience in financing and managing early stage companies as well as turnarounds.