Do you work in the automotive industry? Are you facing an impending cash flow crisis or really feeling the effects of inventory delays? If so, then automotive industry factoring may offer the short-term financing solution you need. Keep reading to find out what invoice factoring involves and how it can benefit your business.
What is Automotive Industry Factoring?
Invoice factoring is not a lending arrangement. When a company decides to factor their invoices, a factoring company will buy the value of the invoices outright and then advance most of the invoice value in a lump sum payment to the owner.
Unlike a traditional bank loan, automotive industry factoring is not dependent on credit history or the length of time a company has been in business. Instead, getting a funding request approved depends on the creditworthiness of the customers. If you own a business and are seeking invoice factoring funding, as long as your customers have a good payment history with your company, it's likely that your factoring request will be approved.
So what does the process actually look like?
What Automotive Industry Factoring Involves
The factoring process is pretty simple. For businesses like auto repair shops, car dealerships, and parts suppliers, typical payment process involves generating an invoice after providing goods or services to a customer. Instead of waiting for the customer to pay the invoices, you can choose to sell the invoices to a third-party funding company known as a factor.
When you finance your automotive industry invoices, the factor is purchasing their current value. Upon receipt of the invoices, the factor will send as much as 90 percent of the face value to you and then get to work collecting on the invoice from your customer. Once the factor receives full payment from your customer, they will deduct their fees for providing the factoring service and release the remaining reserve amount back to you.
As a business owner, after you receive funding you can decide how you would like to use the money for your business. You may decide to spend the funds on needed repairs, meeting employee payroll obligations, or purchasing new inventory. There are no restrictions on how the money must be spent.
What About My Credit?
One of the biggest factors that influence loan approval from a bank is credit rating. Even if you do quality for a loan, you will likely have to pay a higher interest rate. Invoice factoring is different.
As mentioned above, invoice factoring relies on the creditworthiness of your customers. If you have not been in business long, or if your credit is less than stellar, the factor can still approve you for funding. As long as your customers have a history of paying their invoices on time, you are likely to be approved for invoice factoring.
Having bad credit can sometimes feel like an insurmountable obstacle. However, factoring provides you with an opportunity to demonstrate responsible financial behavior and rebuild your credit score while avoiding taking on more debt to keep your business running.
How Automotive Industry Factoring Can Benefit Your Company
Traditional bank loans require jumping through hoops that many small businesses can't currently reach. Between the stringent eligibility guidelines and lengthy approval waiting periods, bank loans may not even be an option for your business. When you need money, and you need it quickly, factoring can be a great solution.
Automotive industry factoring can give you a flexible line of credit without the requirements of passing a credit check or putting up collateral. You get the added benefit of not having to chase down your customers for timely payments, as the factor takes over collections. Factoring also provides a degree of flexibility because it is based on the volume of invoices you generate. So you can get more or less funding, based on your needs.
The biggest benefit of using automotive industry factoring is that you can get access to needed funding very quickly - sometimes in as little as 24 hours. This is a big advantage over the typical invoice periods, which can stretch as long as 60 to 90 days.
Once you have an established relationship with a factor, you can choose to use invoice factoring as an ongoing financial tool. When you generate new invoices, you can choose to factor them to maintain a steady cash flow and working capital.
If you decide that automotive industry factoring is a good fit for your business needs, don't hesitate to reach out to a reputable factoring company like Factor Funding for more details on how this funding method could work for you. This short-term financing solution may be just the answer you've been looking for.