How Factoring Services Can Provide Your Company The Growth It Needs
When businesses need cash but have only invoices to present, factoring services can be the best option.
While every business starts with the goal of earning profits in mind, it isn’t always as easy as that. Unfortunately, many businesses fail within the first year or two of starting up. A lot of the time, this is because of limited funds. There are financing solutions that can help keep a business steady in the early days, or when cash flow is limited. When you need to keep operations up and running but end up with invoices and absolutely no cash, factoring services is a good remedy. Waiting on clients to pay may take months. If you need money right away, factoring allows you to get an advance on the money owed to you, so you can keep on running your business like you should.
Businesses, Income, And How Factoring Can Help Unless you’re in the right business, it’s unlikely that you’ve heard of accounts receivable factoring. When most people make financial decisions, they do so without automatically looking at all the options available to them. Being familiar with factoring services is extremely important, particularly for those companies who need immediate income in order to continue the daily operations of business. Factoring in finance is a financial transaction, wherein a company will sell their accounts receivable at a discount to a factor, who finances the invoices. The intent behind this is straightforward. It provides cash to businesses while they wait for client payment, making it possible for them to function and grow in the interim. For both beginning and established companies, this is an incredibly useful service.
Many individuals are aware that you can take out business loans to be able to receive financing you need to operate a business. Just because it is possible to take out a business loan or line of credit does not instantly mean you should. There are many reasons that considering factoring services may be a better option for you personally. Depending on the type of business you have, who your customers are, your financial reserves, and how long the time between the actual exchange and the payment to your company is, factoring may be an invaluable asset that can allow you to keep your business running efficiently. Every business varies. But for those who wait 1 to 3 months to receive payment on client accounts, factoring is an amazing financing option. New businesses stand to profit greatly from this kind of financing as they establish and build their companies.
Is Accounts Receivable Factoring Credit? Even though bank loans and especially lines of credit can feel like free money for your business, they definitely aren’t. You will pay back your debts plus interest, which can take a lot of years before it’s all said and done. For starting businesses, loans can be challenging because you might not have the credit to obtain a substantial loan, and your company resources may not be beneficial enough to get the quantity that you initially imagined you could. Factoring benefits smaller businesses by allowing them to control the growth of their company by giving cash based on the value of their receivables, and the credit of the company who owes on the receivable. Rather than putting your entire company’s resources at risk, you are able to simply sell select assets, in this case the invoices of businesses that owe you money, at a discount, and for a fee.
Business owners can look into loans and lines of credit for businesses. Factoring services may be the perfect option, and cost you less in fees than you would pay in interest. There are some significant differences between loans, lines of credit and accounts receivable factoring, and you won’t know what’s best for you until you know how each one works, and what is in jeopardy when you pick one. With each option, the amount of money you receive, the risks involved should you default, and the amount you’ll pay for the service are going to change. Once you know what you can obtain and what it will cost, the choice you need to make should be apparent.
Opting To Sell Your Invoices There is a time to make investments in your business and grow, and times when downsizing or halting business may be necessary. Every single business owner has to determine how best to enhance cash flow for themselves. Whether you want to pay off business debt, pay staff, purchase materials for manufacturing, or produce some cash reserve, businesses always need more money to thrive and grow. Deciding to get financing and what kind is not a simple decision, but there are times when it truly makes the most sense or is absolutely necessary to continue running as a company. Factoring services can give you much needed cash flow as you’re starting out, or growing your company.
There are specific situations that make factoring more effective than a loan from a bank. Without great credit, it can be impossible to get a loan. Factoring services would make sense in this scenario because the factor will look at the creditworthiness of the clients, and not necessarily the business, making it possible to sell invoices in order to gain cash flow, and continue to expand operations. Another crucial consideration is the fact that a factoring company only pays a portion of the invoice, usually from 70% to 90%. Once the client pays, the factoring client receives the rest, minus the service fee, but if invoices are small in your business, this type of financing can be expensive.
Some Businesses Require Factoring More Than Others There are a variety of companies that commonly utilize invoice factoring services. Certain business models are more likely to profit most from factoring receivables. Those who stand to benefit most have to be business-to-business companies, who typically wait from 30 to 90 days between the time that a service or product is dispersed to a client, and when an invoice is paid in full. The most common examples you’ll find are short-term staffing companies, commercial construction contractors, oil and gas service companies, manufacturers, wholesalers and distribution companies. The actual product or service provided by these different kinds of companies varies widely. But the model of each is the same in the sense of one business supplying services for another business. By getting early payment, these types of companies are able to carry on producing products, or can fulfill their obligations and continue daily operations with greater cash flow.
For some kinds of businesses, credit lines or loans are the only available financing alternative. Only particular businesses are qualified to factor their receivables, so your company may or may not be able to utilize this. In order for a factoring receivables company to be able to finance, they have to determine the chance that a client’s invoices will be compensated. Essentially, the creditworthiness of the customer who owes on the invoice is what establishes if you get cash or not. Your customers can not be comprised of individuals. Essentially, if you want to sell your invoices, your company must provide products or services to businesses, known as business-to-business sales, as opposed to business-to-customer or business-to-government sales. If your company sells directly to an individual, then you would not be able to sell your accounts receivable.
Take note of what type of cash flow solutions are available for your business. If you operate a business-to-business company, and are in need of extra cash flow, consider selling your accounts receivable. As long as you deal with a reliable factoring company like QC Capitol Solutions, you’ve got nothing to lose. Not every financing solution puts your whole company at risk the way a loan does. And you can forget about interest payments. If you want your company to thrive but lack the cash reserves, look into factoring services. With the correct factoring company, you can get the money you need to help build your company into all it can be.