Invoice Factoring: An Alternative to Loans for Your Growth

Posted by Factor Funding Co. on March 30, 2012
Many small businesses run into problems with cash flow from time to time. Since so many companies operate on net30 or net60 invoice periods owners may have to wait as much as a month or two to get paid for work they do. Until they are able to save up enough funds to have a cash reserve for necessary expenses most businesses operate on very small profit margins and have periodic issues with cash flow. One way to keep your business running is to learn how to fix your biggest cash flow problem with business financing.

About Business Financing

Typically, businesses have gone to banks and other commercial lenders to get loans when they need help with cash flow. However, in the current economic environment, many banks have tightened their lending criteria, requiring impeccable credit history and several profitable years in operation before they will grant a loan. These standards can be next to impossible to meet for new or struggling businesses. An alternative way to get business financing is to use invoice factoring to get an advance on future payments.

Using Invoice Factoring to Improve Cash Flow

Invoice factoring is a great option for businesses that have regular paying clients. Factoring is not a loan and does not require company owners to open a new line of credit or pass a credit check. Rather, the business owner sells the value of the company's open invoices to the factoring company. The factoring company then advances the bulk of the invoice value, usually up to 80 percent, to the business, giving the owner cash in as little as two business days. This advance allows the business owner to get the funds up to sixty days sooner than a typical invoice period.

In return for the advance, the factoring company assumes the responsibility of collecting on the invoices. This means that the business doesn't have to follow up with the customer to pursue invoice payments. Once the customer pays the invoice to the factoring company, the company subtracts its factoring fee and the original advance from the total and issues the remainder to the business to close the account. In the meantime, the business owner has been free to use the advanced funds to pay for necessary business expenses such as payroll, repairs, advertising or equipment.

If you need to know how to fix your biggest cash problem invoice factoring may the option you've been searching for. Since the arrangement doesn't require good credit or length of time in business you might find it to be a perfect fit for you.

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