Invoice factoring provides small businesses with the financing you need if you are unable to qualify for small business loans and other things. Getting a business loan is incredibly difficult for small business owners due to the number of small businesses that have failed in the past few years. Since so many businesses are failing and declaring bankruptcy, lenders are nervous about sending out their money out without a high interest rate or some type of collateral to secure the loan.
One way to secure the money you need for your business is through a process known as invoice factoring. Invoice factoring is a process of selling your past due invoices to a company to receive up to 80% or more of the total invoice amount. This provides you with cash now so you don't have to worry about the collection process or wait around for your customers to pay their invoices within 60 days or longer.
Unpaid invoices leaves you with very little working capital, which can be a killer for small businesses that need to free up their capital to pay their invoices to their vendors along with ordering raw goods. If you are trying to grow your business you must have working capital to expand. Invoice factoring is one of the easiest ways to get the money you need from those unpaid invoices so you can focus on executing the growth of your small business. Having the money up front also provides you with a chance to improve your business credit as you can pay your bill on time.
Customers are the lifeblood of your organization if you can get them to pay their invoices on time. Unfortunately this is incredibly difficult to do as many customers that work with small businesses tend to drag their feet with payments. Large corporations have a larger customer base so they can demand timely payments and don't mind losing the customers that take awhile to pay. Small businesses need every customer they can find so they are willing to forgive the slow payments. Unfortunately this can also be your demise as a small business because you are tying up capital your business needs to survive. Invoice factoring allows you to accept the orders of the larger clients as you can sell off these invoices and get paid immediately instead of waiting around to get paid.
How does invoice factoring work? You need to find a firm that specializes in invoice factoring and then complete the work and send in the invoice so you can get paid. Usually you will be paid 80% of the total invoice amount and then once the factoring company is able to collect the money from the customer, you will receive the last 20%. The factoring firm will charge you a fee for their services so you can expect to pay about 10% of the invoice amount to them, allowing you to earn 90% of the invoice amount.
Why do companies opt for invoice factoring compared to traditional loans? Unlike a traditional loan, you don't have to undergo all of the traditional pre-financing procedures to obtain the financing. Instead you just have to provide the invoicing firm with the invoices and agree to a fee amount.
Your customers need to have a steady payment history with your company in order to acquire the loan. If it shows that you struggle to collect money from your customers, the factoring firm may be hesitant to provide you with the money up front or they may withhold paying you the additional 20% after they finally collect the money from your customers.
Corporate Credit Concepts specializes in invoice factoring. For more information about invoice factoring and how it might benefit your business, please CLICK HERE for a free phone consultation.