If your business needs to accelerate customer payments, experiences cash flow gaps or faces unexpected expenses, invoice factoring can be a lifeline. It’s a form of alternative business funding that allows you to sell your unpaid receivables at a discount to a third party and receive instant payment. Most businesses are approved, even if they’re newer or don’t qualify for a loan, because factoring doesn’t rely on the same rigid criteria that banks use. This makes it a very unique funding solution, but it’s only the start of what sets it apart. On this page, we’ll share seven of our favorite things about factoring so you can better understand how it works and how it might benefit your business.
1. You Receive Immediate Access to Capital
Around a quarter of small businesses have less than a 13-day cash reserve, according to JP Morgan. In these situations, something as small as a single late customer payment or unexpected expense can make it impossible to cover critical expenses like payroll and inventory.
Most traditional funding solutions are not designed for these kinds of situations. It can take weeks to get approved. Months may pass before the business receives the payout. Invoice factoring is different. If you’re diligent with documentation, your initial approval will usually arrive within days, if not sooner.
Moreover, businesses typically receive their advances within two business days, deposited directly into their bank accounts. You may also qualify for same-day payments when you work with a factoring company like Charter Capital. Because factoring offers immediate access to capital, it’s often the best funding solution for businesses that need a quick injection of capital to maintain normal operations or bid on a project.
2. Your Business Doesn’t Accrue Debt
Although debt can sometimes be helpful, particularly when it empowers the business to grow and boost its credit score, issues relating to debt management have been increasing in recent years. Around one-third of small businesses say making debt payments is a challenge, according to the latest Small Business Credit Survey. Close to two-thirds indicate their business is in fair or poor financial condition.
Invoice factoring doesn’t create debt. The advance is paid off automatically when your customer pays their invoice. You’re free to move forward without worrying about making extra payments and may even improve your credit score due to the increased ability to make timely payments.
3. It Improves Customer Credit Management
Slow and delinquent payments are a common issue for small business owners. Around ten percent of payments are either never paid or paid so late that the business has no choice but to write them off as bad debt, CPA Practice Advisor reports. It’s more than a nuisance. These issues impact your ability to make payments and increase time spent chasing invoices. Research also shows that business borrowing increases with slow and late payments, per Insightful Accountant. This means the payment behaviors of your clients directly impact your debt and overall financial health.
Thankfully, factoring addresses these issues in a couple of different ways. First, your factoring company runs credit checks on your clients before factoring invoices. You learn how much credit you can extend to each client without exposing your business to unnecessary risks. Secondly, your factoring company collects the balances for you, so invoices are typically paid much quicker. You’re far less likely to have to write balances off as bad debt, too.
It’s also worth noting that you don’t have to change your payment terms to achieve these benefits. If giving your customers a longer payment window helps you maintain stronger relationships or win more bids, you can keep doing this and still benefit from improved cash flow.
4. You Gain Financing Flexibility
Factoring helps keep businesses agile. You can use it as needed for virtually any situation. For instance, some leverage it to fill cash flow gaps as their business grows, while others factor invoices as they ramp up to meet seasonal demands or fulfill larger orders.
It’s also one of the few funding solutions that automatically scales with your business. As your invoice values or volume rises, your access to capital rises with it. Plus, you can use it when you want. You don’t need to factor all your invoices or factor all the time, so you have more control over your cash and how you put it to work.
5. It Fuels Growth
Capital from invoice factoring can be used to fund growth-related initiatives such as business expansion, launching new products, and marketing campaigns. Charter Capital clients have achieved significant results through factoring, such as doubling their client base and growing 56 times bigger in just a few years, case studies show.
6. It Gives You Time Back
More than two-thirds of small businesses spend 14 hours each week on administrative tasks related to collecting payments, QuickBooks research shows. Because your factoring company collects for you, your company gets much of this time back. Put it toward growth-related activities, customer-focused tasks, and more.
7. You Gain an Experienced Partner
When you work with an invoice factoring company like Charter Capital that knows your industry, you gain an experienced partner who can help your business reach new heights. Your team may be able to help you address growing pains, provide financial advice, provide additional services, and link you up with other pros who can streamline your operations and grow a stronger company.
Maximizing Business Growth with Invoice Factoring
When it comes to business, achieving a steady cash flow and immediate access to capital are critical factors that drive growth and operational efficiency. Invoice factoring, a powerful form of accounts receivable financing, stands out as an essential tool for businesses aiming to bridge the gap between billing and payment periods. By leveraging factoring services, companies can instantly convert their accounts receivable into working capital, providing a lifeline to improve liquidity and fund expansion without incurring debt. Factoring allows businesses to sell their outstanding invoices to a factoring company at a discount, thus receiving immediate funds usually within 24 hours. This process improves cash flow and reduces overhead costs associated with chasing down payments, thereby improving operational efficiency. One of the advantages of factoring accounts is its ability to provide flexible financing solutions that adapt to the company’s growth, unlike traditional loans, which might involve lengthy approval processes and monthly payments.
Furthermore, factoring offers a strategic advantage for businesses in need of short-term cash solutions. It benefits businesses by alleviating the burden of debt collection and improving credit management. Factoring companies assess the creditworthiness of your customers rather than your business, offering a unique form of financing that can be particularly beneficial for new businesses or those with less-than-perfect credit. Non-recourse factoring further enhances this benefit by protecting businesses against the risk of customer default.
Factoring services also contribute to a business’s competitiveness in various industries by ensuring liquidity is available to pay invoices, purchase inventory, and even take on new projects. For example, businesses like security guard firms can benefit from security factoring, which helps maintain steady cash flow despite delayed payments from clients. The immediate cash provided through factoring can help companies manage their balance sheets more effectively, fund significant portions of their operations, and utilize immediate funds to meet their short-term needs. It’s a transaction that facilitates immediate payment on outstanding receivables and offers a pathway to growth and financial stability without relying on traditional debt financing.
Learn more about the benefits of factoring and how factoring can help companies to not only survive but thrive in today’s competitive market. Factoring provides a non-traditional loan alternative that improves cash flow, enhances liquidity, and supports business expansion. Contact Charter Capital to discover how factoring works and to explore a factoring agreement tailored to your business’s unique needs. Factoring helps businesses pay their invoices on time and continue their journey toward success without the financial strain tied up in unpaid receivables.
Request a Free Charter Capital Invoice Factoring Rate Quote
With decades of experience, experience across a wide variety of industries, and competitive rates, Charter Capital can help your business reach the next level through invoice factoring. If factoring sounds like the ideal business funding solution for your needs, request a free rate quote.
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