Invoice Factoring: An Alternative to Venture Capital Financing
Individuals looking to start a business may look to venture capital financing as a way to fund their great idea. Private investors are willing to give money to companies in high growth and potentially profitable industries.
Obviously investors are looking for a return on their investment and sometimes a rather quick one. This can put a lot of pressure on a new business. It can also be difficult for some companies to receive these types of investments. An investor has to believe in the project and the business often has to be a particular industry that offers a big ROI, high growth and fast profits. Not every company will meet these criteria.
For these companies, it will be necessary to find alternative funding. One really great alternative is invoice factoring. We will discuss it more in-depth, including its’ advantages, below.
Invoice factoring is fast. It allows company’s to get an advance on their invoices in a matter of days. The entire process, from finding a company, to hammering out a deal, takes far less time then attempting to secure venture capital financing. It is also much simpler.
It is much easier to obtain funds using invoice financing. The process is much shorter and involves far less convincing. A company does not have to prove how they will be able to pay back the borrowed funds (because it is not a loan). Because factoring involves being advanced money that has already been earned (and the factor does the collecting), there is nothing left for the company to do but wait until the job is finished. Companies also do not have the burden off going out and securing business in order to pay back venture capitalist lenders. They are using the business they have already secured and leveraging it for much needed monies.
As a business grows so does the amount of money that can secure through factoring. Cash advancements grow with sales volume. The more invoices they have outstanding, the more money they can receive.
Venture capital financing is generally used by new and startup companies. It is a way for them to receive money when they might not yet be eligible for a bank loan. Invoice factoring can also be used by new companies, though not those who have yet to secure any business. As long as they have paying clients who owe them money, they should be able to receive an advance on their invoices. The difference between invoice factoring and venture capital financing is that companies will not have to pay money back when they use the former option. This means less stress, worry and no debt. Companies also have more control over their business because they don’t have anyone directly and monetarily invested in their company, feeling like they have the right to tell them what to do.
Venture capital financing can be a great option for companies that need a lot of money to begin a company but have no customers. However, for those companies that are newer and have already secured clients, a really great choice is invoice factoring. It allows them to get a quick infusion of cash without taking on debt from investors.