Benefits of Invoice Factoring

Growing companies require help managing cash flow. Most firms don't start with huge cash reserves, so preserving them is crucial.

FREMONT, CA: Growing companies often need assistance managing their cash flow. Cash is a limited resource for most businesses, and preserving what is available can be crucial. Companies can keep their cash flow stable by using specific financing methods. Invoice factoring is a common type of financing.

THE PROCESS OF INVOICE FACTORING

Business factoring involves a company selling its open invoices to a factoring company. The factoring company provides an upfront amount the business can use for working capital in exchange for the right to collect payments from the original company's customers.

A small business factoring service usually provides 60 to 80 percent of the invoice's value. Upon collection of the outstanding invoice, the company will receive the remaining balance, less a factoring fee.

A FACTORING COMPANY: WHAT IS IT?

Factoring companies provide funding for companies with receivables. Accounts receivable management companies or banks may offer factoring services.

An account receivable factoring company can be an extension of the accounts receivable department or provide highly flexible services. Invoice funding companies charge different fees depending on the services they provide.

Invoice factoring can have a lot of benefits. Invoice factoring helps small businesses tap into anticipated receivables and pad their cash flow. The following are some reasons why invoice factoring is beneficial:

Get Access to Funds Quickly: Companies can receive financing immediately after factoring in their invoices. In most cases, factoring agreements make funds available within a week of signing. Companies may need invoice factoring to solve a severe cash crunch if it is experiencing a cash shortage.

No Reliance on Credit Scores: A factoring company can help new companies that still need to build a credit history. Companies will be able to obtain financing without providing a credit score. Factoring companies are not required to consider creditworthiness since the lending is based on the customer's credibility instead of their own.

Obtainable: Getting into a factoring agreement is quick as long as companies meet the qualifications. A few business days may be enough to begin factoring. A bank loan, for example, offers a sharp contrast. A bank loan usually takes several weeks to obtain—and many red tapes are involved.

Debt-free business: Factoring does not involve taking on debt that needs to be repaid over time. Customers are responsible for paying their invoices, not companies. Companies are simply gaining a faster payout on their invoices. Companies with limited liabilities (unless it has taken out a loan before) can benefit from this. They don't need to provide a personal guarantee either.