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Is Factoring Right for Your Small Business?

Is factoring right for your small company?If you own a small business and  are seeking a loan, you have more than one alternative. One of the most common choices is loan from a bank or other type of financial institution. Another option is invoice factoring. This second option is becoming more and more popular for small businesses because it is a way to improve cash flow that is not based on a business’s credit rating. Also, it does not involve loan approvals or debt that must be repaid. In fact, invoice factoring provides  businesses with the cash they need  almost instantly, with a great amount of flexibility and no need to take on additional debt.

Factoring companies work with businesses of all sizes across a wide range of industries. In essence, the only qualifier is that the business must sell products or provide services to customers that have not yet paid their outstanding invoices. When invoices are outstanding but cash is needed, a business can partner with a factoring company that is willing to advance a large percentage of the value of the unpaid invoices to the business. The result is a win-win situation for both the factoring company and a business that is in need of cash.

Getting Started
Once a business determines that invoice factoring is the alternative it will use to raise needed cash, the factoring company will closely evaluate the business’s client base and  related outstanding invoices to determine if customers who have not paid their invoices are good risks. If the customers are deemed extremely likely to pay their outstanding invoices, the factoring company will advance cash to the business once all  the required paperwork is completed. The process is relatively simple and allows a business to obtain the cash it needs  in a very short period of time. Normally, a business might wait  60 to 90 days for  invoices to be paid. With invoice factoring, a business can receive cash within a few days while the invoice factoring company waits for customers to pay their outstanding invoices.

Cash Flow Problems Solved
It is not at all unusual for small and mid-sized businesses to have cash flow problems. When  payroll obligations must be met, vendors must be paid, or unexpected expenses must be covered, it can be difficult for businesses to quickly raise the cash they need. But with invoice factoring, a business does not have to prove its credit worthiness or endure months or years of building an established credit rating. Instead of looking at the credit of the business, factoring companies examine the credit worthiness of the business’s customers. If the customers are approved, the business will qualify for a cash advance.

Factor a Little or Factor a Lot
How much do you factor?If you own a business that is in need of cash, there is no limit the number of invoices you can decide to factor. You have the option of factoring all eligible invoices – as long as each customer is approved by the factoring company. Some small and medium-sized businesses factor millions of dollars of invoices each month or year. The goal of invoice factoring is to speed up your cash flow and give you the money you need to keep your business operational. If you cannot obtain a loan, or if you do not want your business to acquire additional debt, invoice factoring could be your best possible choice.

Benefits of Small Business Factoring
The many benefits of invoice factoring could help solve your cash flow problems. First, your business does not have to risk losing potential customers simply because you do not have enough cash on hand to maintain your production efforts. Second, improved cash flow allows your business to purchase additional equipment and supplies if they are needed for advancement. Third, cash on hand allows you to pay your employees and your bills on time. Your business can eliminate cash flow problems forever with the help of invoice factoring.

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Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.