Funding your business should give you the chance to grow your company without financially crippling you. You may think, however, that getting money for your business' cash flow is impossible without taking out an expensive loan. When you want to increase your revenue and escape the heavy burden of long-term debt, you can do so by relying on factoring as a finance source.
Factoring is entirely different than taking out a bank loan. It can be more a more affordable and easier option for adding money to your corporate budget. Even more, it can help you grow your business in these three significant ways.
1) No Recurring Interest Payments
When you take out a loan from a bank, you are saddled with an annual percentage rate that you may be unable to afford, particularly if you have a low credit score or no collateral. The APR increases the amount of money that you owe to the bank and can prolong the amount of time that you must pay on this obligation.
However, factoring is not and cannot legally be considered a loan. The fee that is charged when you sell your invoices or accounts receivable is not an APR because it is not charged on an annual basis. Rather, it is a one-time discount fee and is not an expense that you must pay on a monthly basis.
2) Renewable Source of Financing
Factoring also differs from a bank loan in that the transaction typically takes a shorter time to complete. A bank loan may require that you pay on it for months, if not years. However, factoring is based on when your accounts receivable and their payment dates.
Once your clients pay their invoices, the transaction between you and your factor can be closed. Alternatively, you can sell more invoices, giving you a constant source of financing. In turn, you may end up getting more money from factoring in a year's time than you ever could from a bank loan.
3) Significant Cash for More Profit and Growth
Banks today tend to be very cautious in lending money. If you are approved for a loan, it could be for a lesser amount than for which you originally applied.
However, when you factor your invoices, you get upfront cash that is based on the value of these accounts receivable. After you pay the discount fee, you could end up with a substantial amount of money that you can use for any purpose that would help you grow your company. These purposes could include:
- Buying More Inventory
- Completing More Orders
- Taking on More Clients
All of these undertakings should help you increase your profits rather than shrink them. Your revenue can also increase substantially if you can keep costs down for overheads like:
- Rent or Mortgage Payments for Office Space
- Labor Costs
- Office Supplies
With the proper attention to how you use your cash flow, you may be able to double or even triple your business with factoring, something that may not be possible if you take out a bank loan or avoid seeking outside funding entirely. Moreover, you escape the burden of having to make a recurring payment on a loan that could prove to be incompatible with your finances.
It can be difficult to grow your business when you take on debt that you cannot afford. When you want to fund your company without compromising your cash flow, factoring can be your ideal solution. Factoring helps you grow your company by offering you these three unique advantages.