One of the most noted benefits of factoring is the ability for a company to quickly raise cash when they can’t get a traditional loan, or when they are experiencing rapid growth and need to purchase materials, pay vendors and cover operating expenses.
However, this is not the only advantage. There are a significant number of reasons why companies should consider invoice factoring. We will examine five of them below.
1. Factoring is an extremely fast way for companies to raise money: A factoring deal can be done in only a few days. A company can have cash in hand in a very short amount of time. This can be extremely beneficial for a company that is desperate for cash or that is looking to quickly expand their operations. It can take a good amount of time, applying for a loan and then getting word back on whether or not a bank is willing to provide a company with the money needed. A business may not have that amount of time. The livelihood of their business may depend on getting money fast.
2. Factoring shortens the collections process: Businesses sometimes have to wait weeks or even months before they are paid for services rendered. During this time, they might be cash poor and may not have the funds available to grow their businesses or even pay for current operational expenses.
3. Factoring allows companies to bring in money without taking on new debt: Debt can be an effective tool to build and sustain a business. However, it can also be risky, especially for new businesses. Factoring allows companies to receive badly needed money without resorting to taking out an expensive loan.
4. Factoring can be a great option for companies having trouble qualifying for a bank loan: Getting a business loan has always been challenging. Today, it is even tougher because banks are holding on tighter then ever to their money. If a company has not been in business very long or has had problems repaying loans in the past, then the likelihood that they will be able to receive a bank loan is pretty small. A good alternative would be for a company to use factoring services.
5. Factoring can help companies that have no collection department or an understaffed one: For small businesses that don’t have a collections department or adequate personnel, a factoring company can provide a much needed service. Factoring can provide them with what they need (money) to survive and/or expand by advancing them money for their invoices and then collecting on them. The seller will obviously have to pay for these services but it is well worth it for many businesses.