A lot of businesses have been enjoying the benefits of factoring. factoring companies specializes in financing invoices from companies that have cash flow problems. Businesses that consider factoring will have to sell receivables at a small discount to get immediate cash. This means that they don’t have to wait 30 to 90 days to recover their working capital. This leads to a reduction of the receivables and continuous cash flow to allow a better business growth. Below are the main reasons to consider factoring.
It is Easy to Qualify for It
Getting qualified for a bank financing is not easy for the majority of businesses. But qualification won’t be a hassle with factoring since it is only based on the credit of customers instead of the business. The reason is instead of buying invoices, factors purchase invoices.
It Doesn’t Require Collateral
With bank loans, your assets will secure what you borrow. But with factors, you have to have a first priority lien on your accounts receivable.
It is a Versatile Option
With a bank loan, you need to have a long-term commitment to the bank where you pay your debt monthly whether the business stops or continues. Factoring speeds up the repayment that your company has earned. Also, you can turn it on and off. You have the option to factor all your investment in a month and none the following month.
It is Less Costly
Factoring comes with competitive fees. You can compare such fees with the fees you will pay to your credit card companies when advancing cash on their card sales. Fees in factoring could be cheaper than credit or bank financing when you think about the extraneous fees banks charge apart from the fund’s cost.
It Offers Free Credit Checks
Factors offer some money- and time-saving services that banks don’t. They help reduce bad debt by having free credit checks on your current and new customers. This lets you set appropriate credit limits and ensure you don’t extend terms to risky customers.
It Professionally Manages Receivables
Factors minimize the overhead cost of invoices and collections processing. Also, they let you access real-time aging and collection reports online. This means that you can log in to see updated such reports and print them out for accounting or internal purposes.
It Doesn’t Limit your Growth
A line of credit from a bank means that your credit line’s size governs your business opportunities. But factoring doesn’t involve any credit line caps which limit your business growth. Your capital tends to grow in proportion to the success of your sales.