Paragon Financial Group is funding during the COVID-19 crisis.

Invoice Financing Can Revive Your Business In Today’s Economy

Invoice Financing Can Revive Your Business In Today's EconomyThe latest surveys have shown a rise in the consumer confidence index. It is hard to say whether it reflects a true improvement in the economic conditions or is caused by the overall optimistic mood the consumer is experiencing. This may also reflect the fresh start they hope for with the beginning of the New Year.

No matter what the actual cause is, it means business owners are hoping for the credit crunch to ease, higher consumer spending and lower unemployment. Nevertheless, how do we expect this to take place if these three issues dominate? A rise of activity in the small to the medium-sized business sector would help as we know that the decline in business by this sector significantly contributes to the official 9.7% unemployment rate in the country (and unofficial probably double that).

Small business owners would be happy to get their companies going, but they are facing a huge obstacle – a complete inability to get financing from banks. Bank financing was the easiest path in the past. Not anymore, today, banks are stricter than ever and are giving out loans only to businesses with flawless credit and reputation. Therefore, startups and companies with not so perfect credit have zero chance to get traditional financing. As a result, this forces startups to look elsewhere or give up.

However, the situation is not as pessimistic as it looks. There are still many business opportunities in the market for small businesses and startups. The main challenge is to find enough funds to stay afloat until they start receiving profits from the venture.

Many business owners are not aware of or underestimate funding options of accounts receivables financing or invoice factoring. Companies that provide this source of commercial capital are what we call factors, and non-bankable clients are their market niche. Besides the simplistic nature of the process, it is very fast as well. Instead of waiting for the clients to pay their invoices, companies sell them to a factor at a discount price. Since waiting for clients, payments can be very painful for businesses with cash flow problems.

It usually varies from 70-90% of the invoice value. The rest of the money is put in the reserve account. This will be given out to the company as soon as the factor collects the payments from the debtors. The average fee for the service is about 2.5%, but it varies with the volume of the invoices. The bigger volume of the invoices you factor, the cheaper it gets.

Another important feature of the factoring that makes it attractive for the businesses is that the factor is only concerned with the creditworthiness of the client’s customer. This can be a huge relief for startups with no established credit or for the company with poor credit.

Small and medium-sized business owners can greatly benefit from utilizing accounts receivables financing. Going after bigger contracts, being on time with suppliers and payroll are just a few advantages of factoring.

Traditional bank lending will be slow to increase for small and medium-sized business anytime soon. Even considering the government’s latest attempts to revive it, factoring is still the value alternative that can secure the steady cash flow to fuel growth of your business today.

By Natasha Matsyushevskaya

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