Small and midsize companies struggle with many of the same problems, but cash flow and credit issues usually make the top of the list. The reason behind this is simple. Newer businesses simply haven’t had time to establish credit, and they’re dependent on every penny coming in to make ends meet. If anything upsets the apple cart — slow-paying clients or an emergency — things can veer off course quickly. This often perpetuates the cycle, getting caught up in debt or, worse yet, taking a hit to one’s credit score. It’s very difficult to climb out of this once you’re in it, but invoice factoring can help overcome this challenge or preventing it altogether.
Invoice Factoring Involves Selling Your Unpaid Invoices
Unlike other methods to solve cash flow woes, invoice factoring is not a loan, so there’s no cycle to get caught up in. It simply involves selling your unpaid invoices to a third-party company, called a factor. The factor pays you promptly for the invoices, then collects payment from your clients.
You Don’t Need Good Credit for Factoring
When you take out a bank loan or line of credit, the financial institution lending to you is entrusting you with money they expect you to pay back. With invoice factoring, it’s your clients’ credit history that is evaluated. That means you can qualify for invoice factoring with little to no credit history.
Factoring Companies Can Help You Minimize Risk Too
Because invoicing for goods and services is such a common practice, many business owners simply go with a standard template and expect their customers to be responsible. They may give their clients 30, 60, or 90 days to pay the invoice, never really realizing that in doing so, they’re extending credit to their clients. All too often, that also means that an invoice will go unpaid, simply because the end-client requested more goods or services than they could afford to pay for. Factoring companies can help you avoid this kind of situation by checking into the creditworthiness of the clients. That way, you’ll always know how much credit to extend without jeopardizing your cash flow and business.
Invoice Factoring Can Help When Other Cash Flow Solutions Fail
Invoice factoring is a great solution for those who won’t qualify for business loans and lines of credit because the requirements are less stringent. Moreover, it also helps business owners avoid having to use their own collateral, such as securing a business loan with their home. Naturally, it beats out high-interest options, too. Check out “The Real Cost of a Cash Advance Loan” for a side-by-side comparison.
It’s Easy to Qualify and You Can Choose Which Invoices to Factor
Because credit is not a concern, getting approved is a quick and simple process. If you’re organized, you can get approved for invoice factoring in a matter of days and have cash in hand immediately after. It’s also worth noting that factoring differs from other options in one other major way: you don’t have to factor all your invoices, and you don’t have to continue factoring for a specified period of time. If you’ve got a single invoice you want paid today, factoring will work. If you’re worried you might struggle during a slow period, you can sign up now and leverage your factoring service later. You can also submit all your unpaid invoices. It’s a highly customizable solution, so you can choose what’s right for you.