Before you consider going to a bank for a small business loan or line of credit, you might want to explore another option. A better one because it’s money that already belongs to you. The money you get from the flexible financing is invoice financing, which gives you the cash flow you need to pay expenses and grow your business. It’s also known as factoring and accounts receivables financing.
Accounts receivables are open invoices that haven’t been paid. It’s money a company is owed after delivering the product or service. Clients may take 30, 60, 90, or more days to pay the invoice. Some companies speed this process with flexible financing from a factor. The factor — a third party company — buys your invoices and gives you cash as soon as you submit them.
Because you get the money faster, you can pay your expenses or take the next step to grow your business.
Here are five reasons to do accounts receivables financing with the right factor instead of working with a bank.
1. Get money that belongs to your business.
Unlike with a bank loan, you pay back nothing with invoice financing. Instead of borrowing money, you’re getting the money you’ve already earned — faster. It also saves you the time and headaches — and most importantly, friction — that come with contacting clients who are late paying their invoices. This isn’t a fun call to make. Invoice financing takes that off your plate. This isn’t a fun call to make. Invoice financing takes that off your plate.
2. Stop stressing over nonpayment.
Today, most small businesses waste a lot of valuable time trying to collect payment from customers, much less getting it faster. A line of credit can’t change that.
Because the factor absorbs the time you spend trying to collect payment for your invoices, you can use that regained time to focus on growing your business. The factor gives you the cash and you don’t have to deal with collections for as long as you work with the factor.
3. Get signed up in three days.
Financing via factoring isn’t a loan. Because of this, factors don’t require the same information or collateral to start working with a client. The qualification process varies by financing company. For example, Capital Solutions Bancorp only works with business-to-business (B2B) companies with more than $1 million in annual sales.
A prospect who takes this route can get signed up within three days. A bank, on the other hand, rarely takes fewer than 90 days to approve a five- or six-figure line of credit. Besides that, banks are less likely to approve five-figure and other small business loan requests because they’re less profitable.
4. Gain back office support
When a factor handles your invoices, the factor can do customer credit checks, billing, and collections for you. The time you save in cutting these daily activities is time you can invest back into your business doing what you do best.
5. Be in control of your invoices
You may be able to have a factor fund one, some, or all of your invoices. You can decide on a case-by-case basis based on your cash flow or working capital needs. That’s why invoice financing is flexible. Ask the factor about this as you may only need help with one or a handful invoices, and you’re done.
Factoring doesn’t create debt. It affords you a great way to grow your business. You’ll be able to fund a job that you would otherwise not have the money to do. Or you’ll avoid late payment fees or interest as you’ll pay your expenses on time.
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