Factoring Receivables – A Small Business Funding Solution
It’s no secret that most small businesses across the country view traditional bank loans and lines of credit as the holy grail of financing due to their low cost of funds…and rightfully so! The simple truth is that if a company can obtain traditional bank financing in an amount sufficient for their capital needs, they typically have no need to consider an alternative form of business funding. The underlying problem with a pure factoring vs. bank financing comparison is that these two financing avenues should rarely both be considered to be viable options for any single company at any given point in time. As a result, if a business finds their search for bank financing to be a fruitless endeavor, factoring receivables may just be the best small business funding solution available.
What exactly is receivables factoring?
As detailed on our About Receivables Factoring page, invoice factoring is a form of small business funding that entails the selling of accounts receivable, or invoices, by your business to a finance organization in exchange for immediate cash. In many ways, this form of financing is very similar to offering your customers an early payment discount. For example, if you bill a customer at “2/10 net 30”, you are offering them a 2% discount for paying within 10 days. The problem with this arrangement is that your customer controls whether or not they pay early, not you. With factoring, you decide which invoices get paid early (usually within 24 hours), and are essentially providing that early payment discount to the factor instead of the customer, since the factor then waits to collect from your customer.
Who should consider factoring receivables?
Any small business that provides goods or services to other businesses paying on terms, and is unable to locate a sufficient amount of bank financing, should consider accounts receivables factoring regardless of their size or industry. Such candidates often include startups and other companies with limited time in business, organizations experiencing rapid growth, and owners with poor credit, bankruptcies, or even existing tax liens.
Why is receivables factoring important?
In this Huffington Post Article Stacy Mitchell states,
“In our 2014 Independent Business Survey, 42 percent of business owners that needed a loan in the previous two years reported being unable to obtain one.”
With so many small businesses finding bank financing out of reach, it is comforting to know that invoice factoring has helped an enormous number of small and mid-sized organizations obtain the capital they need when banks simply would not. Additionally, with factoring, you decide which invoices to factor and when to factor them, allowing you to tailor your payments to match your varying cash flow needs.
Getting started with small business funding
Factoring receivables is a fairly straight forward process that is available to organizations in nearly every industry imaginable. Best of all, it’s easy to get started and begin funding. If your small business has been unable to obtain the financing it needs to grow, feel free to Contact Us now to explore your options. We typically only need a few minutes to help determine if factoring is the best small business funding solution for you and your company.