From the first day it becomes a business, your company can be eligible for factoring, also known as accounts receivable financing. Factoring relies more on the creditworthiness of your customers than your company’s own history. So any time, really, is fine for factoring.
There are some situations in which factoring becomes a necessity. If any of the following six scenarios look familiar, it is time for your company to seriously consider factoring as a financial tool:
Your cash cannot keep up with demand
Business is picking up, but you have identified a gap in your cash flow. Your company cannot fund expenses like paying drivers insurance or buying fuel to meet the increased customer demand. It is time for factoring, which can advance more than 80% on an invoice, often within a day. This quickly builds up cash flow so you can add employees, buy equipment and cover other expenses that help you meet demand.
You are tired of waiting on payments
When you provide a service on credit, it is common to wait 30, 60 or 90 days on a customer payment. Same-day funding through factoring takes that wait out of the equation. Factoring companies also take on the collections work and will pay you the balance of the invoice (minus a fee) once your customer pays.
You want to grow faster – right now
Factoring gives you the flexibility to do that. Instead of shopping for a traditional bank loan, you can begin factoring almost immediately. Unlike bank terms, there is no limit to the amount of funding with a factoring company that has a strong capital structure. The factoring volume can increase from thousands of dollars to millions of dollars within months. And factoring is not a loan: your company assumes no debt.
You have a new company
With no history, balance sheet or cash flow statement, your company will not qualify for asset-based or cash-flow lending. But it can start factoring, which is based on the credit histories of your clients. A factoring company will examine your clients’ credit scores, payment patterns and overall financial health before agreeing to offer financing. How long you have been in business is usually not a major concern.
You have limited resources
Customer collections take a lot of time and energy, especially for a small business. Factoring companies take that off your plate with collection specialists who will follow up with your customers until they pay full invoice amounts. This gives you time to serve customers, seek out business opportunities and not worry about getting paid.
You want strong customers
Some factoring companies will have access to credit data and days-to-pay information on companies that may become your customers. This resource allows you to make informed decisions about new and existing customers.
Regardless of your company’s size or the industry you are in, factoring presents many advantages. It is cost effective, debt-free, and easy to get started. With the right factoring partner, it can be the financial engine that drives your company’s growth.