Businesses of all types and sizes may experience times when the cash flow does not keep up with expenses. That can present issues with meeting payroll, paying suppliers, or bidding on new contracts. Going into debt is not wise for a business owner because the situation can result in business failure.
A Business Bank Loan
One option to get out of debt is to apply for a business loan from a bank or credit union. The process may be lengthy, and approval relies on the credit history of the business. That adds another payment that has to be paid every month. It also accumulates interest.
The process of invoice factoring provides an alternative to a business loan. There is no complicated application that takes days to prepare. An application for factoring can be completed in one hour. No interest rates apply, and approval does not depend on business credit status. It depends on the credit worthiness of business customers.
So, what is invoice factoring, and how does it solve cash flow issues? Getting paid via invoice takes thirty, sixty, or up to ninety days. In the meantime, payroll has to be covered, the opportunity to expand the business may present itself, or equipment may have to be repaired or purchased.
Instead of waiting all that time for the cash, a private lender purchases those invoices for up to ninety-six percent of the face value. There are no upfront fees and money is paid out within forty-eight hours. When the customer pays the invoice in full, the lender takes a certain percentage from that amount as a fee.
Compare Lenders Before Factoring
Factoring can be done as a one-time transaction, or be ongoing to ensure monthly expenses can always be met. The business owner can select the invoices to be factored, offering flexibility. There is no risk because the lender assumes all the risk associated with customers who default on the invoice.
The amount paid and the percentage rate taken as the fee varies among lenders. The different factoring options will vary as well. Some only offer invoice factoring, while others offer several types of factoring. Spot factoring, accounts receivable factoring, and freight bill factoring are other possibilities.