Is your business short on cash? Instead of pursuing traditional bank financing, consider invoice factoring as a viable option to solve your cash flow problems. Invoice factoring, also referred to as accounts receivable financing, is a transaction in which a business seeks financing for its outstanding invoices from a third-party factoring company such as Growth Capital. Here are 10 hidden benefits of invoice factoring:
Instant cash flow
To get approval for invoice factoring is fast and easy. You only have to submit a simple application with minimal paperwork. Once your application has been approved, the factoring company can set up a new account in as little as 2–5 business days. After setting up an account, you just submit the account receivables that you want to get advance on and you will get your advance within 24 hours. The influx of funds helps to improve cash flow. Bank loans and lines of credit involves a much longer application process that can take weeks or months to get approval.
Invoice factoring is a powerful weapon in your growth arsenal. This financial tool allows you to turn outstanding invoices into immediate cash. Factoring companies usually assume responsibility for collecting payments, giving you more time and resources to run and grow your business. Invoice factoring is especially beneficial for small and growing businesses. By factoring your receivables, you gain instant access to working capital that can be used in whichever way you want to meet your business needs. These funds can be used to purchase new inventory, invest in marketing and advertising, hire more staff, etc. There are countless ways to use the funds provided to boost business growth.
Predictable and transparent
Factoring invoices gives you the ability to anticipate revenues with complete cost transparency. You’ll know exactly what you’re getting when you enter a relationship with Growth Capital. Under a factoring agreement, there will be a specific factoring discount rate and advance rate for your business. Depending on the volume of invoices you factor and the type of factoring arrangement, you can determine the funds you’ll receive and when you’ll receive them. Unlike other factoring companies that charge additional hidden fees, Growth Capital fees are completely transparent.
Invoice factoring is not a loan. Rather, it is an outright sale of your account receivables to a factoring company. This transactional type of financing is advantageous for businesses that are looking for a cost-effective way to raise working capital. Unlike bank loans and lines of credit, invoice factoring does not require additional collateral. Many banks have collateral requirements that can create obstacles for your business. There is no risk of losing any of your assets when you factor your invoices. We simply finance your receivables, so you receive an immediate payment.
In many cases, invoice factoring is more attainable than conventional bank and equity financing. All kinds of businesses can qualify regardless of age, size, and credit history. It is not necessary to have a long business financial history or high credit ratings. Factoring companies mainly look at the credit quality of your customers. Personal and business credit are not as important. Based on this criteria, the approval rates for factoring are very high. Growth Capital offers invoice factoring services that are available to various types of businesses including startups, bank turn-downs, turnarounds, and those with less-than-perfect credit.
Accounts receivable financing provides your business a reliable source of consistent funds. When you factor your invoices, the factoring company will advance you immediately, without question. Payments are done automatically with no delays, usually in 24 hours. Many businesses cannot afford to wait for customers to pay their invoices. They need sufficient cash on hand to cover operating expenses regularly. Invoice factoring ensures that your business will receive a steady stream of revenue. Factoring invoices can give you the confidence to manage and grow your business knowing that you will have enough cash on hand. Subsequently, your business can run smoothly without any major cash flow issues.
Receivables factoring enables businesses to leverage their invoices to gain debt-free working capital. It is sometimes referred to as “off balance sheet financing.” Since invoice factoring is not a loan, there is no possibility of accumulating any debt. It is purely a sale of assets whereby a factoring company purchases your unpaid invoices for cash. Factoring your invoices will not add to the liabilities on your balance sheet. You can finance your receivables without creating a debt, which means no loan payments and a clean balance sheet. With this accounts receivable financing process you can constantly receive funds that you never have to pay back.
Keeping company equity intact
Invoice factoring is not a form of equity. You are not required to give up a portion of your ownership interest to receive funds from a factoring company. When factoring receivables, you only have to pay a factoring fee. Many businesses, particularly startups, using equity financing such as venture capital and angel investing often end up losing a lot of control. Through accounts receivable financing, you can retain complete ownership and control. You don’t have to worry about another party taking over your business. As a result, you are free to pursue your vision and goals without any interference.
Controlling what gets factored
When you factor your receivables, you get to decide how you want to factor on your terms. This includes choosing the amount of invoices to factor, which invoices to factor, and when you want to factor them. Businesses can create factoring arrangements to suit their specific needs. In comparison, banks will place a lien on your accounts receivables. There are 2 types of flexible factoring arrangements: selective factoring and spot factoring. In a selective factoring arrangement, you can select the customers you want to factor and which invoices of those customers you would like to finance. A spot factoring arrangement gives you option to sell a single invoice or group of invoices.
Improved Credit Rating
Accounts receivable financing can improve your credit rating by giving you the ability to manage your payables better. At Growth Capital, we will provide you with immediate cash which you can use to pay your bills sooner. Since invoice factoring is scalable, the amount of funding you receive can grow as your business grows. The increased cash flow from factoring your receivables will enable you to pay your vendors on time which will improve your credit standing. When you have established a good credit rating it will also be easier to obtain credit from other vendors and credit bureaus.