Getting Paid: The Advantages of Invoice Factoring
When you are strapped for cash and waiting for customers to pay their bills, invoice factoring might be a good buffer to keep your business running. This type of financing is not a loan but a cash advance where you sell your outstanding invoices to a third-party provider. The third-party manages the invoices and takes a portion of your customers’ bills when they are paid.
You Get Cash Fast
Say for instance you send an invoice and set the due date for 30 days out. The 30-delay is normally acceptable, but this month you need extra cash to repair a broken piece of equipment. Invoice factoring can give you a lump sum for the repairs and other purchases without disrupting your daily cash flow. Plus, the money can be used for anything you need. You can use it for payroll, insurance premiums, down payments, launching a new product or expanding your services.
Easy Application and Quick Approval Process
Cash advances are known for their speedy applications and approvals. Providers typically evaluate your accounts receivable history to make sure customers pay on time, but not much else is required. Though your credit history may not be a factor in determining your eligibility, providers may want verification of your customers’ creditworthiness. If you can prove your customers are reliable and that your invoices have substantial value, providers usually have no problem purchasing your invoices. However, if your customers’ credit ratings are poor, providers may not want to give you an advance.
With invoice factoring, the third-party provider takes over control of your accounts receivable. If you would rather maintain ownership over your invoices, there are alternatives such as invoice financing and accounts receivable lines of credit.
Invoice financing acts more like a loan where you offer the invoices as collateral to secure the advance. You are still in charge of accounts receivable for the invoices, but if you do not pay back the advance, the provider assumes your invoices as compensation. Some providers offer a line of credit using the invoices as collateral. For this alternative, you are issued a defined amount of credit, but you only borrow what you need and pay back what you borrow.
Contact a Provider
When you operate a reliable business and face unexpected cash flow declines, invoice factoring can be a quick and easy solution get keep you on your feet. Contact a provider for more information and to see if you are eligible to apply.