Invoice Factoring: The Clever Alternative to Bank Loans
Invoice factoring is a clever alternative to bank loans. For some time, bank financing had been the most common way in which companies generated cash whenever they needed it. If a business had been operating long enough and had decent credit, they had a good chance of receiving a bank loan. Though the process was not easy, if a company searched long enough and met the aforementioned criteria, they had a pretty good shot at being able to secure a loan.
Today, that is no longer the case. It is harder then ever for companies to qualify for bank loans. Even businesses with good credit are finding it difficult to be loaned money. However, though bank financing may no longer be an option for many businesses, invoice factoring is.
Invoice factoring allows companies to receive monies without having to take on new debt. They are able to generate cash quickly without depending on a business loan. For companies who have never heard of this option, the information included in this article will likely be mind blowing. Companies which have heard of it, but haven’t yet used it, may be forced to rethink whether or not it might be a good option, especially if they are no longer able to generate monies from traditional sources such as banks.
Invoice financing (another way to call invoice factoring) is a pretty simple. A Factor will purchase the invoices or receivables of a business at a discounted rate. The average going rate is between 70% and 90%. The amount of money that a factor will play will be dependent on a number of things. The age of the invoice, when it is due and the credit history of a company’s clients will all factor into the price.
After the factor purchase the invoices, they will collect on them. All payment arrangements and conditions already in place will stay the same. After the factoring service collects on the outstanding invoices, they will return the money to the company that originally owned the invoices, minus a fee. A typical fee for a factor is between 4% and 5%.
Invoice factoring is a great alternative to bank financing. It allows businesses to generate cash extremely fast, without the hassle of applying for and waiting on a loan. Today, it is difficult for any company, even those with good credit, to receive a loan because banks are holding fast to their money. This leaves many companies in a lurch. Some are even being forced to close their doors. Without cash or credit, it is difficult, if not possible, to stay in business. Fortunately, invoice factoring is a way for companies, even those with poor credit, to generate cash quickly and without debt.