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How Can Invoice Factoring Help a Start-Up?

Business start-up and invoice factoringStarting a new business can be described as exciting, challenging, difficult and rewarding. But no matter what you want to call it, launching a start-up can be stressful. And one of the most obvious contributing factors to the stress involved in getting a start-up off the ground is the amount of cash needed at the beginning. A start-up is not like an established business in that financial options for a start-up are not as abundant. While an established business might be able to easily obtain a loan from a bank, a start-up may not qualify for a significant loan. And without other sources of money (such as venture capital funds or angel financing), a start-up can quickly embark on a downward spiral towards financial trouble.

Without sufficient cash flow, a start-up can be prohibited from finalizing important business deals or hiring additional employees that are needed to help the business grow. These issues can be a real problem for a start-up that is stuck in a rut due to cash flow problems. The bright news is that if cash flow problems are due to outstanding invoices that have not yet been paid, a start-up can inquire about a useful financing option called: invoice factoring. Invoice factoring is a very practical and helpful mechanism for jump-starting cash flow problems. And the best part is that invoice factoring is available to companies in all industries – regardless of the number of years they’ve been in business.

A Start-Up Usually Requires More Money than You Originally Thought
No matter how much time is spent meticulously planning the successful launch of a start-up, the process of getting a business off the ground often requires more cash than originally anticipated. And in most cases, the higher-than-expected cost is something that cannot be avoided. There are almost always additional items that must be purchased or expenditures that cannot be avoided. This is simply the nature of the world of start-ups.

Delayed Payments from Customers is to be Expected
In a perfect world, a business would send an invoice to a customer and a payment would be received the very next week. But as nice as this sounds, it rarely happens. In fact, it’s not uncommon for large customers to hold invoices for up to 90 days before paying them. Unfortunately, this can be catastrophic for a start-up that is counting on invoices to be paid in a timely  manner. Start-ups need cash on hand to pay an abundance of business expenses.

What are Your Options?
Confused, young businessman looking at many twisted arrows on thWhen you are the entrepreneur heading a start-up, you may have a few choices when it comes to securing the funds necessary to launch and run your business. Some of the most common include:

  • Venture Capital financing: When venture capital financing comes your way, it can be a very positive thing. However, very few start-ups are offered this type of funding. And if they are, the cash they are given is not always enough. Additionally, venture capitalists frequently want to play an active role in running the start-up.
  •  Angel Financing: Known as the opposite of venture capital financing, angel investors are typically friends or people related to the entrepreneur who founded a start-up. Angel investors typically do not want to play an active role in running the business, but they provide money to the start-up – sometimes in exchange for a percentage of ownership in the company.
  •  Bank Loan: A bank loan is sometimes an option for a business, but start-ups do not generally have the established credit necessary to obtain a loan of a significant amount.

Benefits of Invoice Factoring
Working with an invoice factoring company allows a start-up to avoid bank loans, and to reject venture capital financing and angel financing if the terms are not desirable. Invoice factoring allows start-ups with little credit history to obtain cash quickly based on the credit-worthiness of customers. This can be highly beneficial to you if your start-up is looking for reliable cash flow without having to take a high interest loan that must be paid back, or give a percentage of your business to an investor in exchange for much-needed cash. With invoice factoring, invoices are paid almost immediately by the invoice factoring company with which you work. With invoice factoring, you are able to focus on the most important thing – growing your start-up into a business that is destined to survive and thrive.


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.