When starting a business, it’s quite normal to encounter some bumps in the road, especially during your first few years as a startup. Look at it as growing pains that you’ll eventually grow past once you’ve become more experienced and financially stable. However, struggling to keep a balanced cash flow would be one of the most pressing concerns for any new business venture.
Working capital requirements can very quickly become a growth inhibitor to a new business. So, you need a solution where you can get a steady source of cash, especially if you tend to generate revenue at an unpredictable rate. This is where invoice factoring or invoice discounting comes in handy. It’s essentially a way for you to “sell” your outstanding invoices in exchange for some cash that you can use for your business operations. We’ve compiled a list of reasons why invoice factoring could be pretty beneficial to your business.
1. Invoice Factoring Doesn’t Require Extensive Financial History
One of the biggest problems most businesses encounter with traditional financing methods is the requirements for getting one. Typically, banks will look into your entire financial history to determine your eligibility for a loan. If you’re a startup, this can be quite a problem since you basically don’t have any financial history yet.
However, invoice companies are more than happy to help you without focusing too much on your company’s financial history or lack thereof. A lender that offers invoice factoring will instead look more closely into the financial standing of your clients. This is because they advance your business a cash advance of about 96% with low rates on your outstanding invoices.
2. Financing is Easier and Faster
If you have a business model that sells on 30-day payment terms, it’s going to be quite challenging to maintain good cash flow if all your revenue will only come in at the end of every month. That 30-day chunk of revenue could actually be the majority of your cash flow, and without it, your operation will be crippled. Having said that, you can’t always wait for the bank to process your loan application, as it usually takes a couple of days or even weeks to process.
Invoice factoring solves all those problems by making it easier for you to get the financing that you need. They merely need to check your customers’ financial standing and promptly transfer the funds you need into your bank account. You can easily bypass that 30-day invoicing process and keep your business going.
3. Having the Ability to Work with Bigger Clients
It’s always hard to have the necessary working capital to take on bigger projects or serve larger clients. These things require a lot of investment in manpower, equipment, and other resources that not all new businesses can easily afford. You risk disrupting your cash flow a lot if you don’t have some reserve funding.
However, with invoice factoring, you can get enough capital to serve larger clients and orders due to the cash advance you get from the lending company. You can easily get a percentage of the invoice with your client to ensure that you have the proper funds to complete the order.
For many business owners, maintaining a steady cash flow isn’t exactly a walk in the park, especially if you need to wait a couple of weeks for clients to pay you for your work. With invoice factoring, you never have to worry about running out of cash and just focus on serving your clients in the best way possible.
Porter Capital Porter Capital is here to help small businesses to get instant funding and keep their business operating as smoothly as possible. We make great things possible for organizations and companies by offering flexible financing solutions, such as invoice factoring and asset-based lending. Reach out to us today to learn more about how we can help you grow your business.