Guide to Factoring

As a business owner you know there are many financing options for your company. But options for generating cash flow can be time-consuming to research, and it can be hard to identify which option suits your company best. 

One option is factoring, and we’ve highlighted several reasons why you would want to use it as your choice to help grow your business.

Why use Factoring?

It’s Flexible

Factoring can be used on a per-invoice basis, making it one of the most flexible ways to generate cash. If your business is cyclical with periods of high or low sales, you can choose to factor more or less invoices.

It Relies on Your Customers’ Credit

The question of whether you can qualify for factoring depends mainly on your customers. This can be a real asset to newer companies with little credit that are selling to large established companies.

It Doesn’t Add Debt

Factoring is not a loan, and it doesn’t require taking on more debt. As long as your customers pay their invoices there are no payment obligations.

It’s Quick to Set Up

If you have landed a large order and don’t have the cash to cover it, factoring can allow you to get paid on open invoices immediately. This lets your company fulfill the order and continue to grow. A factoring relationship can be set up in days, not weeks or months.

It’s Targeted for Growth

Factoring may be the perfect solution if your company has many profitable opportunities but is struggling to grow due to the time it takes for your customers to pay. Factoring stabilizes cash flow and allows your company to focus on growing, whether through sales, marketing efforts or expanding workforce.

There Are No Equity Strings Attached

With invoice factoring, there’s no need to bring in investors, allowing you to maintain your current level of ownership.

When to use Factoring?

Here are a few quick examples of situations where factoring can work well for a company.

  • A company whose avenues for borrowing money have been tapped but is still trying to grow.
  • Business owners who want to keep growing their company without bringing on new equity partners.
  • A company that is experiencing rapid growth and is looking for a short-term cash-flow solution.
  • A company whose clients take too long to pay and is looking to close the gap between paying suppliers and getting paid by customers.
  • Turnaround situations where a company is rebounding from an economic downturn or other financial setbacks.

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