As a norm, most small businesses do sell their services/products on credit, but the invoices are often paid weeks later. This can create a financial crunch within the company that must have enough working capital for operations and manufacturing. Since taking a conventional loan would take a considerable amount of time, many businesses choose to opt for factoring.
Factoring, also known as invoice financing, is the process of selling accounts receivable to a factoring company for a quick loan. The factoring company will check the creditworthiness of your debtors, and if things go right, you can expect to get the loan within a day. In this post, we will discuss the benefits of factoring at a glance.
- Get a quick loan. Factoring company helps businesses in getting paid quickly. If your invoices are due after 60 days and you cannot afford to wait, this is easily the best way of funding your working capital needs.
- No collateral needed. Unlike traditional loans, where you have to pledge an asset, factoring doesn’t require any collateral, and thereby, this form of financing doesn’t impact the balance sheet. For small businesses, this is a big advantage.
- No threat to equity. Small business owners often don’t like to risk their share in the business, but that’s often a requirement in conventional financing. With factoring, you are only selling what you own, so there is no additional threat to your equity.
- No unnecessary waiting. If you agree on a traditional loan, you will have wait for a few weeks before the bank or lender gives a nod for the amount. Since we are talking about working capital requirements, factoring works better.
- No delays in payment. Regardless of the niche and industry, businesses don’t like to risk their reputation in the market. It’s important to pay your creditors on time. The amount received through factoring can be used to meet such obligations.
- Because it’s simple. There is no denying that factoring is an easy process, and therefore, it is suitable for most businesses and growing firms. You can expect to get credible assistance from the factoring service, and as long as you choose the right one, there are no hidden charges.
- Avoid the debt collection process. Getting money from your debtors can be a big task at times, and you can avoid that with factoring. The concerned factoring company will take the job with a more professional approach.
Check online now to find factoring companies now!