With banks denyingÂ credit for most small businesses, companies are increasingly turning to invoice factoring for operating cash and expansion.
Factoring is increasingly popular: ItÂ is a form of commercial financing that uses a company’s oustanding, discounted invoices as collateral.Â So, instead of getting paid in 30, 60 or 90 days, the company gets cash in just a few days by offering discounted invoices to a factoring company.
There are no banks, loan applications or credit checks involved. The invoice is borrowed against your creditor, not your company.
It’s a simple process: The factoring company buys the invoice, the company is paid immediately, and the client (creditor) must pay the factoring company back. And you get your cash quick, in as little as 24 to 48 hours.
There are many advantages to a factoring company:
Speed:Â Unlike in a traditional bank loan, factoring can give you quick access to your cash in as little as 24 to 48 hours. It’s ideal for companies who have lucrative contracts, but can’t afford to wait to pay their employees when the client reimburses them in 30 days or longer. Factoring gives you immediate cash.
Financial: Your credit is not under scrutiny; it’s the credit of the company that’s paying your invoice that the funding decision will be based upon. Your company may be a start-up or financially challenged; it doesn’t matter because your client’s credit is under consideration, not yours.
Credit: As long as the client who invoices you is credit worthy, you can have a healthy factoring relationship. Factor as many invoices as you wish.
No loan repayments: Factor as much and as often as you wish — without worrying about interest rates or payments. When the client pays the loan, your factoring amount is paid off.
Minimal set up: Factoring isn’t difficult. There’s very little paperwork involved, with no lengthy credit approval process. Factoring is not a loan, and you don’t have to wait weeks and weeks to get a decision from a loan committee.