Small businesses often face problems with cash flow. However, they find it difficult to obtain funding from traditional banks because of the strict eligibility requirements. An effective solution to this dilemma is invoice factoring. Here is some information to help you determine if it is a good fit for your business.
Basics of Invoice Factoring
Owners of small businesses often require cash on hand to meet their expenses as they wait 30 to 90 days for payments for pending accounts receivable. With invoice factoring, you sell those unpaid accounts receivable to a factoring company. The lenders immediately send you 80 to 90 percent of the value of the invoices. You receive the balance after the factoring fee has been deducted when your clients pay in full.
Qualifying for Invoice Factoring
Although factoring companies will check your personal and business credit histories, they are far more concerned with the creditworthiness of your clients. Evaluation of your customers includes assessments of their payment histories, credit scores, and legal or debt issues.
Advantages of Invoice Factoring for Businesses
Invoice factoring offers you the opportunity to obtain the funding you need and at the same time avoid going into debt. You are more likely to be approved for invoice factoring than for a traditional loan, especially if your customers have good credit scores and payment histories. Additionally, the approval process for accounts receivable factoring is much quicker than for traditional loans.
Advantages of Invoice Factoring for Clients
Your clients will benefit from invoice factoring in several ways. First of all, your company will more easily be able to offer 30 to 90-day payment terms while still keeping cash flow strong. Because payment collections are taken over by the factoring company, the process becomes more efficient and streamlined. Your clients are handled with courtesy and respect by experienced professionals. Having sufficient working capital enhances your reputation, ensuring continuing growth.
For more advice on financing your business with invoice factoring, contact WHW Capital.