Invoice Factoring as Alternative Funding
Invoice factoring is a type of alternative funding. The business draws out funds or cash from their customer invoices and receivables before they are actually paid for. This is a pretty common tool used by many companies and has been proven to be advantageous in multiple instances.
There are two different types of financing, factoring and discounting. Both options bring your business similar benefits but work differently as factoring is considered a sale while discounting is considered a loan. For now, we’re going to focus on invoice factoring.
Factoring is when the business sells its invoices to a factoring company, such as GMA Factor. These companies provide an advance, typically 80-95% of the value of the receivables. They then collect the customer’s payment when they pay their invoice.
This type of finance is used for many reasons, such as:
Building a better cash flow
When a business needs to improve their cash flow, factoring is one of the best solutions out there. It improves the inflows versus the outflows.
Unable to obtain a loan
Sometimes loans can be pretty difficult to acquire. Invoice financing, however, is relatively easy to apply for and many people are approved, despite having subpar credit. This is because the factoring company isn’t relying on the business applying to pay anything, but rather on the customers that have received the invoices.
Funding emergency expenses
Funds from invoices factoring can be acquired very quickly, sometimes within twenty four hours or less. This fast cash can be used for emergency purchases when there isn’t any cash available in the company’s budget to afford these purchases. These quickly accessible funds are also helpful when a company comes across a great deal that would help expand their business, but there’s no extra money to spend.
Those are just a few ways that this type of funding can help a business, however there are plenty other reasons why invoice factoring could be a great solution to your business’s financial needs.