How Factoring Companies Can Help Your Business

When it comes to funding, more and more small businesses are choosing alternative means of obtaining funding instead of relying solely on a bank loan. Among these financing options, factoring companies are being approached more frequently nowadays because they offer several crucial advantages that banks do not.

  • Boosts your cash flow quickly. This is perhaps the most common reason why businesses approach factoring companies. They may not have enough cash resources to cover payroll, fulfill an order, or buy equipment necessary to operate.

But factoring companies can offer 80% of the value of accounts receivable right away, instead of making you wait a month or two for your customer to pay up. The rest of the money comes to you when the customer pays the factor in full, and it’s from that payment that the factoring company deducts its fees.

The quickness of this solution is a vast improvement over bank loan applications, which takes an interminable time to complete. And when you need more money, you have to apply to the bank again. In factoring, you can get your advances regularly over the length of the factoring contract.

  • The terms are dependent on your sales. Essentially, you don’t get in trouble borrowing money without having the resources of paying it back on time. In factoring, it’s all about your customers’ ability to pay on time.

You don’t go into debt so you’re not tied to paying fixed amounts every month. Instead, you can get your funding according to the amount of sales you rack up per month. And in some factoring agreements, you can pick and choose which accounts receivable will be factored. So if you only need a certain amount of money, you can just submit enough invoices to cover it. You don’t have to submit all your accounts receivable for factoring if you don’t want to.

  • You get extra services. Factoring companies offer important services which you may need and which are not available when you get a bank loan. For example, factors investigate the credit worthiness of your customers, so advance rates and fees may differ depending on your customer. You may even have customers that your factor won’t consider. This means you get a more accurate picture as to which of your customers are more creditworthy.

Another crucial service is collection. Many factors take responsibility for the collection of the payment, and this frees you from having to set up a department for this function. In fact, the factor may monitor your invoices for you, and tell you which ones are due for the coming week. They can do this for you so you don’t need to hire additional personal for these tasks.

Basically, factoring companies can help you eliminate the distractions in your business. This allows you to concentrate on more productive business activities that are more suited for your skill set. It’s easier to focus on selling your wares and services if you’re not worried about your cash flow and your receivables.