Invoice Factoring: A Key To Success For Technology Companies
Invoice factoring can be an excellent way for technology companies to receive the capital they need to conduct business. With it becoming increasingly difficult to qualify for a bank loan, all companies are being forced to think ‘outside the box’ a bit.
It is incredibly important to come up with alternative ways to generate capital. Invoice factoring is one of the very best because it allows businesses to receive money in a very short amount of time. In some cases, businesses are able to receive money within 48 hours or less. When this is compared to the amount of time it would require to apply for a bank loan and then receive it, there really is no comparison. Invoice factoring is much faster. For technology companies that find themselves in dire need of money and on short notice, this is likely the best option.
Invoice factoring allows tech companies to use monies already owed them to generate capital. Instead of waiting for the traditional 30 to 90 days before payment is made on an invoice, it is possible to receive money instead within days. A Factor is a company that purchases other businesses invoices for a discounted amount. Typically, this is somewhere between 70% and 90% of the total value of the invoice. This money is handed over right away and the company can do with it whenever they want.
The factor will then collect on the invoice according to the original payment arrangements. All of the business’ clients will pay the invoice directly to the Factor. They will also engage in collection actions if necessary. Once they have collected the money they will then return it to the original owners of the invoice minus a fee and the money they already paid them. This works out to be a great arrangement for both parties. The technology company is able to receive the money they need right away and the factor is rewarded for their service.
Technology companies that find themselves in a cash crunch and are unable to generate capital using traditional means, for example, bank financing may want to take a close, hard look at invoice factoring. It is a way for them to receive money right away for business they have already generated and without going into debt.
This is an option for nearly all tech companies regardless of their own credit history or the number of years they have been in business. As long as their clients have good credit, this is an available option and one that should be considered by those with occasional or chronic cash flow problems.