Every business has a need for steady cash flow, however in the current economy options are diminishing quickly. As a result, many businesses are finding it hard to meet payroll, pay back their debts and are also finding it difficult to continue the growth of their company. Luckily, knowledgeable business owners are discovering that they can still have a steady cash flow even when business financing from a bank is not available to them. More and more businesses are benefiting from factoring their accounts receivable and it is important to understand the benefits of doing so.
The explanation for many of the benefits obtained by factoring invoices and accounts receivable is the characteristic between selling an asset and in turn gaining credit. Rather than dealing with a loan from a bank, the business sells their right to receive payment on outstanding invoices to a factoring company, which will then provide the business with an immediate advance of the face price of the invoice.
This process works to many businesses advantage:
1. Factoring helps provide the business with cash without the common debt that goes along with it. Since this process is not a loan, but rather a transaction, there is nothing to pay back.
2. When using factoring as a means of cash flow, the business’s discretionary use of that money will never be restricted.
3. Businesses can choose which invoices they would like to factor and which invoices they would rather keep.
4. Factoring is readily available to new businesses, which may not have the trust of their bank just yet. This method is available to businesses that cannot obtain financing from a bank but need the money.
5. Many businesses who have used factoring say that they enjoyed the low fees and received their money extremely fast, usually within 24 hours.
It is easy to see what factoring can do for you and your business. By freeing up significantly needed cash flow and not increasing debt, factoring is the perfect option for many businesses. These businesses can then use this extra money to pay debts, increase sales and fund the growth of their company. Many business owners have found that factoring their accounts receivable was much more efficient in gaining operational capital than pursuing a traditional business loan. If you own a business that is new to the industry or are just trying to regain your status within your industry, factoring may be extremely beneficial to you and your business.