What Do You Know About Invoice Factoring?

Is Invoice Factoring for you? If you own a small business that needs access to working capital and you:

• Have been unable to obtain financing from a traditional bank;


• Have little or no credit history;


• Need financing more quickly than a traditional bank can provide;


• Have exceeded the credit limit set by your bank;


• Have customers who are paying beyond terms.

Then invoice factoring is a great opportunity for you. Traditional banks are no longer the only choice for business owners because invoice factoring offers flexible, customized lending options to qualifying small businesses.

The Basics - Usually, invoice factors purchase a company’s accounts receivables or assets at a discount, providing the business owner with the financing they need. The assets can be of any type, but more commonly these are assets not typically utilized in traditional loans. This could be commercial accounts receivables, inventory, purchase orders, or any combination of these and other like assets. Most often, funds are received in the form of a line of credit collateralized by these assets, with the total being equal to a percentage of the assets being collateralized. The interest rates are generally higher because the lender is assuming a higher level of risk than a traditional bank, but interest is only paid on funds drawn. For many businesses, the increase in interest rate is worth it for quick and flexible availability of funds.

How It Helps – Invoice factoring can help a small business grow in many ways. Unfortunately, a business can be hindered before ever getting started because it cannot afford growth opportunities when they occur. For example, if a new business were to get a larger order than is typical, one of two things can happen. It could fill the order, reap the profits, reinvest these profits into the business, and continue to take larger and larger orders. The opposite of this scenario would be that they have to turn down the order due to the lack of funds needed to order the necessary inventory, materials, etc. In this scenario, the vicious cycle continues and growth is continually stunted. However, with invoice factoring, the business owner would have access to funds from the line of credit and be able to easily fulfill the order.

Another possibility is that a small business is presented with the opportunity to purchase an existing business and absorb it into itself, thus growing by taking in the other business’s customers. Without the available cash flow, this may not be possible. However, the ability to draw on an asset based or invoice factored line of credit could allow for the buyout and facilitate the growth of the business.

Other Uses – Of course, these funds can be used for many other reasons. They are frequently used as an advance on receivables or sales (collateralized by commercial receivables and/or inventory) to handle day-to-day finances. They can also bridge any cash flow gaps due to seasonal market changes or a period of high growth with less cash reserves on hand. In today’s market, traditional loans are simply not an option for many small business owners for various reasons. Invoice factoring offers a practical alternative to help support growth when needed.

via Business 2 Community http://ift.tt/1mFM4op