Imagine this: you’re an entrepreneur, just in the beginning stages of building your new business. You have already built a small customer base, but in order to reel those customers in, you had to offer them an extended payment plan for their invoices, and they don’t owe you anything for at least another month. You currently have no profits saved up, but the people you recently hired need to get paid so they can pay their bills and feed their families, and you aren’t sure where you will get the money.
This may not be just an imagination, if you have recently opened a business and are now waiting for the cash flow to catch up to the bills. If you’re in this situation, invoice factoring may be able to assist you.
This method of getting money quickly for your products is a relatively simple procedure that will hardly cost a thing. It works when you contact a factoring company to buy your invoices off of you for a lump sum. Some of the money is given to you within a week, where the rest (minus the factoring fee) is given when the customer pays the invoice.
You may be wondering why you should take this option, rather than other options available, such as loans. There are a few reasons why entrepreneurs would benefit from invoice factoring.
The first reason is that it can be more difficult to get a bank loan, especially if you are just starting out. Start-ups aren’t able to prove their own creditworthiness, and you may have to offer up a large collateral to the bank in order to get your loan, which may take a long time to get to you. Factoring is easier to get into and faster to give you your money, or at least a portion of it.
Another reason you may want to choose this easier and faster option is that you are just starting out your business. You probably have a lot of plans for expansion, and you will want to get started on them as soon as possible because the expansion may bring in more customers. Getting rid of your unpaid invoices will give you the cash you need to pay for these expansions and focus on growing your business. You may also be able to take advantage of discounts offered by the suppliers of your products, which are usually offered to those that pay early on. All of these advantages make invoice factoring a no-brainer for your startup business.