One of the financing options that you have in your business in invoice factoring. It involves selling your invoices to get an advance on the money. The company that buys your invoice will then give you a percentage of the amount due and collect the invoice from your customer. There are actually many reasons why this type of financing can be beneficial for your business. Here’s a look at eight of them.
- Ability to Spend Funds Anyway You Want
When you secure a traditional loan, you usually have to explain how you will use the funds. You are then basically tied to using any funds you get for the specified reason. With factoring, you don’t have to explain what you will use the money for. You are free to use it any way you want.
- Affordable Fees
Factoring is much more affordable than conventional loans. Often fees can be as low as 1.5 percent of the invoice. Of course, fees vary depending on many different factors, but most often, factoring will cost you much less than other financing options.
- Fast Access to Your Cash
When you have to wait on customers to pay invoices, it means you are waiting to get cash you need for your business. When you use factoring, you can get access to the cash you need when you need it quickly. In many cases, you can get your application processed in as little as a week if it is your first time and only a day if you’ve done it before.
- Increase Profits
Being able to get fast access to cash can allow you to grow your business quicker and make smart investments that will allow you to increase your profits in the long run. In addition, you will be able to take advantage of special deals or offers on inventory purchases or use the money to hire more staff so you can handle a larger workload.
- Fewer Collection Issues
Because the factoring company will be collecting on your invoices, you no longer have to worry about collections. You can use the saved time and energy to put towards other efforts.
- No Credit Required
Factoring companies don’t really look at your credit. They are more concerned with your clients’ credit because they are who will pay them back.
- No Debt
Factoring isn’t a loan. You are selling your invoices, so you aren’t gaining any debt.
- Flexible Options
Invoice factoring is much more flexible than a loan. It doesn’t involve long terms, payments or contracts.