Small companies that are struggling with cash flow often resort to alternative lenders for assistance in staying afloat. Invoice factoring is often among the options considered, and its unique features make it appealing for many businesses.
When a company does not have quick access to working cash, small company owners must reinvest to expand their operations. Waiting for outstanding payments from customers to fund operations puts pressure on financial reserves and can mean failing to pay rent, even when the money has theoretically been earned.
While some businesses resort to bank loans for funding, one factor that makes bank loans less attractive is the length of time it takes to complete the application process and then wait for approval or denial. Traditional bank loans are becoming less relevant to many small company owners due to the tightening of credit markets. Many would like to get loans quicker and to have more control over their financing—and that’s where invoice factoring comes in.
Invoice Factoring: A Solution for Small Businesses in Need of Cash
Many businesses have improved their situations with the help of invoice factoring solutions. Invoice factoring has been around for a long time, and it has lately been offered in a handy online format to make it more accessible. The use of invoice factoring firms by small- and medium-sized businesses with customers who do not pay their invoices upon receipt can help maintain a stable cash flow. That is why many are finding reasons to avail factoring with their business.
What Makes a Business a Good Candidate for Invoice Factoring?
1. Positive Credit Score
You may have incurred debt as a small company owner or have less than perfect credit. Many alternative lenders are well aware of this. On the other hand, most respectable companies demand a personal credit score of at least 530 to be considered for financing.
2. Aligned Invoice Terms
As a general rule, finance companies advance invoices with a face value of at least $500 or more for clients. For minor bills (under $500) due from the same customer, some providers let you batch such invoices to satisfy the bare minimum requirement of one per customer. Most factoring firms demanded that the due date on your unpaid invoice be 1 to 12 weeks away before they would consider your invoice for factoring.
3. Clients With Good Credit Scores
The customers of the companies that are most suited for factoring are often those that have long payback periods on their contracts. Whether your company has excellent or poor credit, you may use your customers’ creditworthiness to qualify for invoice factoring.
Is Invoice Factoring Worth It?
For many expanding businesses, time is perhaps the essential consideration when deciding whether or not to engage with factoring firms. In contrast to bank loans and government subsidies, which may take months to complete, factoring businesses can handle applications in as little as a few weeks. Small companies in need of quick operating cash will find it attractive because of its low cost.
However, depending on how the loan is structured, the costs may be much greater than those associated with a conventional loan. In some instances, if you can afford to wait longer and are reasonably confident that your loan will be granted, a bank may be the best choice for your small company. Even when they are qualified for bank loans, some businesses determine that the time it takes to qualify for and receive a loan would be detrimental to their bottom line in the long run.
The choices accessible to your business and how to select an invoice factoring service should be well researched. It is critical to understand as a small business how it works before proceeding down that path of invoice factoring. Otherwise, you will not make the most out of this financial assistance.
If you are looking for a reliable factoring company, Porter Capital is your best option. With our low rates and funding in less than 24 hours, we can help your business thrive in the competitive landscape. Get a free quote today!