With the current state of the stock market and the economic implications of the Coronavirus pandemic, many small businesses may soon be facing a financial crunch. In tough economic times, cash flow can dwindle, making it a struggle to keep your business operating. With traditional business loans difficult to obtain even when the economy is good, how can a small business supplement its cash flow? There are a variety of alternative funding options available. However, if your business invoices its clients and then has to wait for 30, 60 or even 90 days to receive payment, invoice factoring could be a great tool to add to your small business survival kit.
Invoice factoring is also referred to as account receivable financing. It can be a great way to leverage the value of those invoices and turn it into cash when you need it rather than waiting for your clients to pay when their invoices come due. It works like this. You sell your unpaid invoices to an invoice factoring company, commonly known as a factor. Once the invoices are approved by the factor, you receive an immediate payment of those invoices, minus a small factoring fee. Payment of the invoices is now owed to the factor and they will collect payment from your customers. It’s important to keep in mind, factoring can only be used for invoices to customers with good payment history. Overdue invoices can not be factored. Now you know how it works. Once you understand the benefits of invoice factoring you’ll see why it could be a small business survival kit necessity.
Having sufficient working capital to maintain daily operations during a downturn in the economy is crucial. However, the last thing a business owner wants to do in uncertain economic times is to take on additional debt. With invoice factoring, you are simply getting an advanced payment on money that is already owed to you.
With invoice factoring, collections of the invoices you sold to the factor are no longer your responsibility. Those invoices are now owned and owed to the factor, who will handle collections. That takes the task off your plate, freeing you up to devote your time to business responsibilities. At this point, you’re probably wondering what happens if one of your customers doesn’t pay their invoice. That depends on the type of invoice factoring you’ve chosen. Recourse factoring provides the factor with legal recourse to collect the fund from you. If you’re factoring large invoices and can’t afford to take the hit if one of your customers doesn’t pay, you may want to consider non-recourse factoring. With this type of factoring, you will not be liable if your customer does pay. However, the fee for non-recourse factoring will be higher. Your factoring provider will explain your options and help you decide which is best for your business.
You’ve worked hard to build your business credit history and maintain a good reputation with your creditors. Not only will invoice factoring can help you protect these but it will prevent you from falling behind on accounts payable. It will also allow you to avoid late fees or damaging your credit score. Selling your unpaid invoices can provide you with the cash you need, typically within a day or two or you won’t have to keep creditors waiting.
Every small business will experience a financial crunch at one time or another. Whether it’s a downturn in the economy or an unforeseen emergency, every business should have a plan to keep their doors open. Part of that plan needs to be a way to maintain your cash flow and invoice factoring can help with that.
You might want to consider adding invoice factoring from CapFlow Funding Group to your small business survival kit. Let’s talk. We specialize in factoring and will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help keep your business on track.
The financial crisis in 2008 made it much more difficult for merchants and small business owners to obtain traditional business loans. Because of this, the merchant cash advance (MCA) began its rise as an alternative business funding option. Immediately following the crisis, the MCA was a way for businesses turned away by traditional financial institutions to get the necessary funding to keep their doors open. As alternative business funding moves forward in 2020 it has become not only a popular option but for many small businesses, it has become their go-to solution for a variety of business funding issues.
Let’s start with what a merchant cash advance is not. A merchant cash advance isn’t a loan. It is an alternative business funding option that provides business owners with the capital they need without taking on any additional debt. Once approved for an MCA, the business owner receives a lump sum advance. In exchange for that advance, the business owner will remit an agreed-upon percentage of future credit and debit card sales to the MCA provider. Whether you’re experiencing difficulty obtaining a traditional business loan or in need of immediate short term funding to maintain your growth trajectory, an MCA can be a great option.
While it is true that a merchant cash advance can be accompanied by a slightly higher interest rate than a traditional business loan, it offers benefits traditional financial institutions can not.
Quick Funding – Often when a small business is in need of cash, they need it now. Submitting endless paperwork and waiting weeks for a traditional business loan isn’t an option – especially since the chance for approval is usually low. When applying for a merchant cash advance, a business can typically receive a determination in 24 hours and, if approved, receive the funding they seek in only a couple of days. For business owners dealing with an unforeseen emergency or looking to take advantage of an unexpected opportunity to move their business forward, quick funding can be a game-changer.
Less Than Perfect Credit – No Worries – While it is not uncommon for some small businesses to have a short or less-than-perfect credit history, it can be a problem when applying for a traditional business loan. That’s not the case with a merchant cash advance. Because it is an advance on future debit and credit card sales, your credit history is not the determining factor. An MCA provider will be more interested in the revenue your business regularly generates and it’s the ability to continue to do so. Also, an MCA doesn’t require collateral so business or personal assets are not at risk.
Flexible and Convenient Repayment – Because MCA payments are based on a percentage of actual debit and credit card sales, their amount will fluctuate with your revenue. This can help business owners avoid being faced with payments that are more than they can afford. MCA terms and repayment collection methods can vary by provider. Interest percentage rates are typically determined on a case-by-case basis. Payments are typically collected by one of two methods – split withholding or lockbox withholding. With split withholding, payments are made automatically through the merchant’s credit card processor. With lockbox withholding, debit and credit card revenue is sent to a special bank account. It is then divided based on an agreed-upon percentage and the MCA provider and the business owner each has the appropriate amount deposited into their respective accounts.
A merchant cash advance allows a business owner to get the cash they need without entering into a long term loan agreement or taking on additional debt. If your business needs an immediate influx of cash, this alternative business funding option can be a great solution.
Although CapFlow Funding Group specializes in invoice factoring, in conjunction with our trusted partners we also offer merchant cash advances and other working capital solutions to provide the funding you need to grow your business. We strive to find the best funding solutions for businesses across various industries. Our team will work tirelessly to see you through to success. Contact us today!
