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Article: How a Factoring Loan Can Help Your Business

Nothing can be more frustrating to a small business owner than having a lot of sales but not a lot of cash. Business owners face this situation daily, especially those that allow customers up to 60 days to pay an invoice.

To make matters worse, this problem often affects companies that are growing quickly. They have a lot of money tied into their accounts receivable, but they don’t have actual cash that can be used to pay for company expenses. What is puzzling to some is that the company may be doing well, at least on paper, and still experience financial problems.

Two common solutions that often fail

When faced with this problem, many owners (and perhaps yourself) try to fix things by demanding faster payments from customers. This approach won’t help much, for two reasons. First, commercial clients and government agencies have set payment procedures and schedules. Getting them to move faster is nearly impossibe. But the second reason is more insidious: paying you slowly improves their cash flow. They pay you slowly because it benefits them.

Another approach is to ask a bank for a business loan or line of credit in order to bridge the gap between invoicing a client and getting paid. Unfortunately, business loans are very hard to obtain – especially for small business owners. Most banks ask for three years’ worth of proven financial statements before offering any business financing.

Factoring loan: A better solution

Let’s say that instead of waiting 30 days to pay, your clients made you the following offer: they will pay you 80% of the invoiced amount  upon receiving the goods/services and then pay the remaining 20% after 30 days. Would some, if not all, of your cash flow issues vanish? The answer is probably yes.

Many of your financial problems would improve – or even disappear. Unfortunately, few, if any, customers will make that offer. But you can get similar benefits by factoring your invoices.

How does a factoring loan work?

A factoring solution finances your open invoices that are due from creditworthy commercial/government clients. The transaction often includes two installments.

You get an immediate advance that covers about 80% of the gross value of the invoice. And once your client pays in full, you get a 20% (less cost of fees) rebate. With this solution, you get predictable cash flow that helps you ensure you can pay business expenses on time.

For more information, please read “How does invoice factoring work?

Flexibility

Factoring companies offer a number of advantages over conventional bank financing solutions. The most important one is that the facilities are flexible and are tied directly to your sales. As a result, your funding increases as your revenues increase, usually without having to go through a substantial underwriting process.

Because of this flexibility, factoring can be an ideal solution for growing companies.

Quick deployment

Unlike most conventional financing solutions, accounts receivable financing lines can be put in place fairly quickly and can be used in a cash flow crunch. On average, a line can be deployed in 5 to 10 business days, provided there are no major issues with the application or with underwriting.

Looking for a factoring loan?

We are a leading factoring company and can provide you with high advances at low rates. For more information, get an online quote or call us at (877) 300 3258.

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