Understanding the Advantages of Invoice Factoring For Small Businesses

 In Invoice Factoring, Small Business Financing

Starting a small business is a dream come true for some Americans. Maintaining a small business, however, has proven to be an enormous challenge for many entrepreneurs. Buying inventory, hiring reliable staff, building a brand, and developing a customer base can cause cash flow problems. These cash flow problems can lead to business owners incurring sizable amounts of debt and ultimately hurt their credit scores. Getting a bank loan to help relieve the weight of the debt and provide an influx of cash to invest in the business is a lengthy process that requires a nearly pristine credit score. Luckily for struggling businesses, alternative finance options exist. There are many advantages of invoice factoring, as opposed to a bank loan, for a small business. 

Immediate Cash Flow & Flexibility

Invoice factoring is a viable alternative finance solution because it does not require taking on any additional debt. Invoice factoring allows a business owner to sell outstanding invoices to a factoring company at a slight discount. Choosing this option will give you an immediate influx of cash to invest in your business however you see fit. One of the many advantages of invoice factoring is the flexibility it affords business owners. The more invoices you factor, the more consistent your cash flow will be for your business. The more consistent your cash flow is, the better your business will be overall.

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Lower Rejection Rates

Unlike bank loans, the approval process for invoice factoring is quick and relatively painless. This is because being approved for an invoice factoring advance does not include a lengthy list of criteria that a business owner must meet. Of the various advantages of invoice factoring, high approval rates are one of the most attractive. 

Invoice factoring is not a loan, it’s a cash advance on debts already owed to you. As a result, most factoring companies do not have to put much weight on the business owner’s loan history or credit score. Invoice factoring also doesn’t require collateral in the form of real estate or expensive equipment, as the business’ invoices already act as collateral for the advance. 

Generally, most factoring companies will look at the payment histories of your customers. This is so that they can get a thorough understanding of what kind of debt they would be taking on and how reliable your customers are repaying what they owe. 

Outsourcing Accounts Receivable

Some customers pay as soon as they receive the invoice but others wait until the last minute. Uncertainty is the reality of business. Not only can slow repayment cause cash flow problems for some businesses, following up with customers to ensure payment is frustrating and time-consuming.

Aside from immediate cash flow, one of the main advantages of invoice factoring is allowing you the ability to outsource uncomfortable follow-up calls. When you sell your invoices to a factoring company, they automatically take on the burden of contacting customers to make sure they receive the money they are owed. Lifting the weight of such a stressful task off your shoulders will allow you to breathe a little easier, focus on running your business day-to-day and ultimately become a better business owner.

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The Advantages of Invoice Factoring with CapFlow Funding

Though bank loans are a popular choice for fixing cash flow problems, there are many more advantages of invoice factoring for business owners. CapFlow Funding specializes in invoice factoring and other alternative financing options for small and medium-sized businesses. If you are a business owner struggling with the recent impact of COVID-19, please contact us today to learn how we can help you get back on your feet.

 

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