One of the most noted benefits of factoring is the ability for a company to quickly raise cash when a traditional loan is unattainable, or when the company is experiencing rapid growth and needs to purchase materials, meet payroll, pay vendors and cover other operating expenses.
However, this is not the only advantage. There are a significant number of reasons why companies should consider accounts receivable factoring. We will examine five of them below:
1. Factoring is an extremely fast way for companies to raise money.
A factoring deal can be done in as little as 24 hours. This can be extremely beneficial for a company that needs immediate working capital or that is looking to quickly expand their operations.
It can take a substantial amount of time applying for a loan and then hearing back from them on whether or not they are willing to provide a company with the money needed. A business does not normally have that amount of time.
2. Factoring shortens the collections process
Businesses sometimes have to wait weeks or even months before they are paid for services rendered. During this time, they might be cash poor and may not have the funds available to grow their businesses or even pay for current operational expenses. Accounts receivable factoring remedies late paying clients.
3. Factoring allows companies to bring in money without taking on new debt
Debt can be an effective tool to build and sustain a business. However, it can also be risky, especially for new businesses. Factoring allows companies to receive badly needed capital without relying on an expensive loan.
4. Factoring can be a great option for companies having trouble qualifying for a bank loan
Getting a business loan has always been challenging. Today, it is even tougher because banks are holding on tighter than ever to their money.
If a company has not been in business very long or has had problems repaying loans in the past, the likelihood they will be able to receive a bank loan is pretty small. In this case, a good alternative would be for a company to use factoring services.
5. Factoring can help companies that have no collection department or an understaffed one
For small businesses that don’t have a collection department or adequate personnel, a factoring company can provide a much needed service. Factoring can provide them with what they need (money) to survive and/or expand by advancing money for their invoices and then collecting on them. The seller will obviously have to pay for these services, but it is well worth it for many businesses.