Why receivables factoring may be the best option for business financing
So what can you do if you need to find money for your small business? You should look at alternative sources of funding for your company. Why not look at investors instead? Angel investors are a great way to acquire the money you need to expand your business. Another option to consider is to use accounts receivables factoring.
What is accounts receivables factoring? How much money have you lent out to your customers? If you have offered them invoices that they can pay back in 30 days or longer, you are essentially offering loans to your customers. Like a bank, you need to collect on this money and hold your customers responsible for paying their bills. Setting up a collection program to acquire the money is an option but for many small businesses this requires money to do and they just might not have the resources to do it. Accounts receivables factoring is a great option to consider instead of trying to do it all on your own. With accounts receivables factoring you will instead be able to sell off your invoices to a factoring firm. The factoring firm normally offers about 80% of the total invoice amount and you will be able to have the money from the invoices into your account in about 2 days.
Why should you accept less money from your invoices? Think of it this way, you have the money you need from these invoices now and not in 2 months or never. This gives you money to use to pay for your inventory items, payroll, vendors, and other operating costs. It will also reduce the pressure on you and your staff to focus on getting the money from your customers. You will be able to work on relationship building with them instead and you get to enjoy having nice interactions with your customers instead of always having to remind them that they owe you money.
Since many small businesses are having troubles getting loans, using accounts receivables factoring is a great alternative. There has been a huge increase in the number of factoring firms out there and these companies are helping to keep many small businesses alive. If you have been turned down by a bank this is likely your best alternative. Your customers will need to have good payment history and credit ratings in order for a factoring company to consider working with you. They too need to be sure that they can collect the money that they are giving to you.