Factoring is the approach companies with slow-paying clients employ to cater to their daily financial needs. Companies utilize factoring funds to build inventory, pay suppliers, pay employees, start new projects, get more clients, and cover tax expenses. Below is a list of ways companies benefit from using factoring.
Funding Small Companies and Startups
Cash flow issues affect companies regardless of their size. Newer and smaller companies have unlimited financing options compared to larger companies. Factoring is an excellent alternative as it is easier to qualify for and can be utilized by small companies. The main criterion to secure funding is your credit quality, and small or new companies with reliable clients can qualify for the financing.
Improving Cash Flow From Slow-Paying Customers
Most companies utilize factoring mainly to improve the cash flow resulting from slow-paying customers. Slow payments create persistent cash flow issues for your business and can worsen significantly if your company grows fast. Factoring the accounts receivable provides your company with adequate immediate funds for the invoices to provide liquidity to cater to cash flow problems.
If You’re Unable to Qualify for a Line of Credit or Loan
Lines of credit or loans are the cheapest financing options for almost all companies. In many cases, they are an ideal solution for your business. Securing conventional financing from a bank is difficult as lenders only fund companies with solid financials and those with an excellent track record. Receivable factoring allows companies to secure traditional funding with simple qualification requirements, including good invoicing practices and creditworthy commercial clients.
Reducing Operating Expenses and Mitigating Expenses
Factoring enables business owners to monitor payments and credit trends of customers and review credit on new clients. The approach gives business owners peace of mind and helps them know what is happening within the customer base. Factoring companies evaluate the payment status and assist with collection calls by working with the back office to facilitate these efforts. Excellent factors provide you with images of received payments and online reporting for transparency of account and fee status.
Companies that don’t qualify for conventional bank loans may consider a factoring approach to generate liquidity. Companies utilize factoring services to maximize back office operations and fund receivables. Contact an expert from Achieve Capital Advisors for additional information regarding commercial financing.