Invoice financing is a fantastic way for businesses to get the monies they need to cover day-to-day expenses, pay for advertising and fulfill orders. Many businesses will eventually face tough times or at least times when their cash stores are limited. Without the ability to raise capital, a business will find itself in a perilous position. Not only might they be unable to cover their fixed expenses but they may find it difficult to expand and grow their business. Expansion takes money and without it, it becomes impossible to go forward.
Until very recently, when a business needed cash they would seek out a bank loan if they were not able to generate it via sales. While most companies with good credit and a few years under their belt, could find some bank to loan them money, today it is much tougher. Businesses with the aforementioned qualifications are finding it very difficult to get a loan. As a result, many are being required to seek out alternative sources to raise money or shut their doors. Invoice factoring is one alternative that has proven to be quite effective for many businesses.
Invoice factoring is an excellent small-business financing option that works very simply. A company, called a Factor, will purchase another business’ outstanding invoices at a discounted rate. This is typically between 30% and 10% less then what they are worth. An example of this would be a Factor purchasing Company B’s outstanding invoices for $70,000 when they are worth $100,000. This money is given to the business right away and can be used for whatever purposes they see fit. They may choose to pay personnel, cover their fixed expenses or even buy advertising to grow their business.
The factoring company will then go about collecting the money owed on the invoices. They will adhere to all previously arranged payment schedules, nothing changes in this regard. If it is necessary, they may continue to write the invoice holder or even call, if they have been late on their payments. After the Factor receive all monies (or as they come in) they will return them to the company they originally purchased the invoices from, minus the money already paid for the invoices and fees. The amount of money a Factor charges will differ. Their experience, standing in industry and the terms of the agreement will all influence the amount of money they charge.
Invoice factoring is an excellent small-business financing option. It allows companies to raise capital extremely fast, within seven days, providing them with the monies they need to successfully run their business. In today’s tough economic times, it is harder then ever for companies to generate capital. Not only are sales down in many industries but it has also become much more difficult to qualify for a bank loan. As a result, many businesses are seeing their cash stores dried up and have no way to replenish them: invoice financing is one-way for them to do that.