Invoice Factoring for Businesses

It can be quite difficult for a business to raise capital through outside sources and, for new companies, the odds of getting a bank loan is slim. In today's economy, most banks won’t even consider lines of credit or loans for companies that have been in business less than 3-5 years. Even companies that have been in business longer than 5 years are having a difficult time getting bank loans. Without sufficient cash coming in, it is challenging for a business to maintain payroll and pay its bills. It is a well known fact that 85 percent of business start-ups close it's doors in the first five years. Some research has shown the reasons for these failures are a lack of proper cash flow and poor strategic planning. Coupled with today’s economy this makes proper business financing more vital than ever. Well, there are ways for businesses to avoid funding issues and find alternatives for obtaining invoice factoring. One method is invoice factoring. Invoice factoring enables businesses to obtain the money needed to keep the company running smooth by getting the cash they need without having to go to a bank for a loan or take on additional debt. Businesses sell their account receivables at a discounted rate to a factoring company. Factoring companies pay cash for the invoices and handle the collection process. A factoring company usually pays 70 percent to 90 percent of the total invoices. Then, after collecting the invoices, the factoring company returns them to the business owner. For this service the business will pay a fee of 1.5 percent to 3.5 percent of the total invoices. Factoring is different from a loan in that invoices are being sold to the factoring company and not being offered as collateral. The business then has the ability to leverage its invoices into operating cash and not have to wait 30, 60, 90 days to receive payment. There are many benefits to invoice factoring for any business. Invoice factoring will shorten the collections process giving a business the cash flow they need without taking on new debt. Factoring can also be a great option for a business or start-up that has been attempting to obtain a loan and is having trouble qualifying with a bank. Many businesses that are in a start-up situation will find it difficult to receive a bank loan making factoring services essential if they want to maintain an adequate cash flow. Most businesses don't have a collections department or adequate personnel and working with a factoring company provides this much needed service. Factoring provides them with the required cash flow to survive and enables the business owner to focus on the day-to-day operations. Receivables financing, receivables factoring or invoice factoring places the time, cost, and effort of collection into the hands of a factoring company. This enables the business’ staff to concentrate on what they were hired to do and not worry about how to sustain the business financially.