The Advantages Of Factoring
If you own a business and are looking into options to gain money for paying bills or a business venture, you may not be aware of all of the options out there for you. Your first thought is probably to call a bank about getting a loan, but for various reasons you may not want to go that route yet. One option you may not have heard of, though, is factoring.
This option, where you sell your unpaid invoices to a company for cash, has its advantages and disadvantages, but especially if you own a relatively new business or need money fast, the advantages can significantly outweigh the disadvantages.
The first and most obvious advantage is an improved cash flow. Instead of having stacks of invoices sitting and waiting to be paid, you can get rid of those and get cash relatively quickly in return. This will allow for a variety of things, such as paying your bills and employees on time, getting rid of the potential clutter of unpaid invoices piling up in your file cabinet and expanding your business by putting the excess profits into a new product or piece of machinery.
Another advantage to using factoring for faster income is that it allows you to offer extended payment terms to your customers. Especially if your business hasn’t been around long enough to save up money for a rainy day, you may not be in a position currently to offer payment schedules to your customers, and that may be driving them away because they can go to a business that will give them an invoice and time to pay it off. This way, you will be able to offer those time payments without fear of not having the money in time to do what you need to do with it.
Factoring is also easier to apply for than a loan, especially if the customers you serve are creditworthy. The company you sell your invoices to is more concerned with your customers’ ability to pay their invoices than they are with how you handle your money, because your customers are the company’s source of income, not you. This means that you don’t have to have amazing credit or large collateral to put down on a loan.
The final advantage to using this method over a loan is that you will get your funds more quickly – usually within a week or two. Getting a loan from a bank could take you months, and if you have customers to pay, you may not have the luxury of time. All of these reasons are why factoring is important to look into.