Hopefully, it will enable you to create longer-lasting client relationships, too!Īlthough it’s understandable that you want to receive the money that’s owed to your business, invoice factoring can come with some financial and operational disadvantages. This can help maintain strong, positive relationships with customers. Debt collection is one of those tasks.īy handing over this responsibility to a small business factoring company, you don’t have to look like the bad guy when it comes to collecting money. Some of your responsibilities as a business owner can be frustrating and difficult. The invoices themselves act as collateral, so you won’t have to worry about submitting real estate, equipment, or other costly forms of collateral. You’ll have more time during the business day to deal with other responsibilities, while the factoring company sets terms and contacts customers for payment. Due to this, delegating those tasks to another company will take a major task off your plate. Let’s face it – keeping track of outstanding invoices and contacting customers is time consuming. Therefore, if your credit score is low or your financial history includes other red flags, invoice factoring still might be a feasible option. Typically, the factoring company will be most concerned with looking at the payment history of your customers because this indicates the amount of risk they’re taking on.
Better Chance of Getting ApprovedĬollateral, credit score, and loan history aren’t major factors in determining your ability to use invoice factoring. You can build a relationship with your factoring services company that will continue if it makes sense for your business. Maintaining cash flow won’t be a problem because you won’t have to wait for invoices to be paid before you have money in your bank account each month. Invoice factoring doesn’t need to be a one-time financing option. You don’t want to wait for your customers to pay you back (in some cases, you may need to wait 30 days to 90 days to receive payment).You have an emergency need and can’t afford to wait weeks or months to get approved.This is an especially viable option if your business is in the following situations: In comparison, invoice factoring gives you access to fast cash (in some cases, you can get same day funding), so you can keep your business running smoothly. Then, it can take additional time to actually receive the financing once you receive your approval status. When applying for a bank loan, it can take months to be approved. Below, you’ll find other specific benefits that come with invoice financing: 1. You should weigh the pros and cons prior to applying for invoice factoring, so keep reading to see if this is the best option for your business!Īs previously mentioned, the most notable benefit of invoice factoring is that you can receive the money owed to your business without having to wait for customers to pay you back. It’s important to note that the company will charge a factoring fee (or discount rate) for the service, often a percentage of the invoice amount.Įven though working with an invoice factoring company can be beneficial to small business owners, there are also downsides that come with it. Then, the task of collecting outstanding invoices will belong to the factoring company. This can be particularly helpful because instead of having to wait for customers to pay your business, you’ll receive money in a matter of days from an invoice factoring company!ģ.
Once the invoices are sold to a factoring company, the money will be sent to your bank account and can be used immediately for working capital. First, you’ll sell your outstanding invoices to a factoring company that pays a lump sum, usually between 70 and 90 percent of the invoice total.Ģ. The basic factoring payment process is simple:ġ. Unlike a business loan, invoice factoring creates an increase in cash with money that’s already owed to your business by customers.
By the end of this post, you can determine if it’s the right type of business financing for your company. In this post, we’ll explain what invoice factoring is and review the benefits and drawbacks of this financing option. Invoice factoring loans are a great option for business owners that need financing while they wait for customer payments. Conclusion Is Invoice Factoring Right for Your Business?Īlthough it can be frustrating to wait for customers to pay off their remaining balances, qualifying for invoice factoring is a viable solution.What Are the Cons of Invoice Factoring?.What Are the Pros of Invoice Factoring?.