Accounts Receivable Factoring FAQ
We’re extremely proud to say that we’ve been able to diversify and expand our services over the years. Today, we don’t just offer equipment financing. We also offer:
This option has several advantages if your company is really starting to struggle with overdue accounts.
- First of all, small-to-medium-sized businesses often don’t have the time (or the resources) to constantly follow up with overdue accounts or try to chase them down. At the same time, the thinner your business’ margins are, the more these overdue accounts can drag you down.
- Another advantage is that factoring can be a speedy solution to quickly pump some cash flow into a cash-strapped business. The trapped money starts to come in, and you’re able to take the stress away from paying expenses and making payroll.
- It’s important to know that this is not a loan. It’s a sale, which comes with its own set of advantages. First of all, there is no increase in liabilities and there are no adverse impacts on your financial ratios. Quite simply, you’re not incurring any new debt.
- With factoring, your business does not have to go through the traditional small business loan application process. This could be particularly attractive for new businesses or start-ups that haven’t accrued much financial standing or collateral just yet.
- Finally, one massive advantage is that you are no longer tying up valuable company time and resources chasing after overdue accounts.
However, like all financial help for small business owners, it is not a perfect fit for all companies and may come with some disadvantages. Most notably, this may or may not be the most affordable option for your company and your situation.
Be sure to speak to your financial advisor or company to see if factoring is the best solution for you, or if you should consider other options. Maybe equipment refinancing would be a better solution. Be sure to explore all of your options.
Factoring is not a loan, it’s a sale. But what does that really mean for your business?
First of all, there is no debt to repay. Your company is receiving money for your accounts receivable, without making any payments towards a balance or principle.
It also could mean good things if you’re a new business or start-up. This could be a more viable option for you to introduce more cash flow. Traditional loans are often more difficult to acquire for these companies.
You can also save yourself a lot of time with factoring. Traditional small business loans can take weeks (or even months) to process. On the other hand, you can be approved for invoice factoring in a matter of days. At the same time, when applying for a loan, your approval is based on your company’s assets and credit history. This can be problematic for a lot of companies. But, your approval for factoring is based on the credit strength of your clients and your accounts receivable.
A small business line of credit works much the same way as a small business loan, and you’re basically held to the same lending criteria. This means that factoring has pretty much the same advantages over a line of credit.
Just as we explored in the small business loan section above, factoring can offer a much faster turnaround time than a line of credit. This could be a dealbreaker if you’re looking to quickly inject some cash flow into your business.
You may also have a better chance of getting approved, as approval is not based on your financial history or the collateral you can offer.
If your business has been denied a small business loan, factoring is definitely a good option for you. In fact, your bank may recommend invoice/account receivable factoring if they can’t help you.
A lot of banks and other lending institutions have lending criteria that most new small businesses and start-ups simply can’t meet. They don’t have much of a proven credit/operational history and don’t have much to offer in terms of collateral.
Factoring is a popular choice for businesses in nearly every sector. It’s likely faster and more accessible than a small business loan or a line of credit. There is also no debt added to your balance sheet or your credit history.
However, in the world of equipment financing options or small business loans, there are no magic bullets or one-size-fits-all solutions. What works for other companies, may not work for your company —even if you’re in the same industry.
Always be sure to look at the big picture and work with an expert to find the right solution for your unique business and your unique situation. The only bad financial solution is one that doesn’t suit your needs.
Never rush into these decisions, even when time is a factor. Explore all of your options!