Owners of small and medium-sized businesses often require additional working capital but are unable to obtain loans or lines of credit from traditional banks. One effective solution to this difficulty is debt factoring. Also known as invoice factoring, which involves selling unpaid accounts receivable to a factoring company in exchange for immediate cash. Here is some information about this method of funding, which if used properly may be able to contribute to your company’s vitality and growth.
The Basics of Debt Factoring
Many companies experience difficulties with cash flow when customers are slow in paying their bills. Debt factoring closes this gap between the delivery of products or performance of services and customer payment. The factoring company, or factor, purchases your unpaid invoices and then collects the payments from your clients when they are due.
Benefits of Debt Factoring
As mentioned above, debt factoring allows your company cash flow to remain stable even when you offer clients extended terms of payment. You have the working capital you need to pay your employees, purchase inventory, buy needed equipment, and even spur company growth. Debt factoring gives you access to the financing you need much quicker and easier than obtaining funding from a bank. No additional collateral is required. You also have the added benefit of being able to devote more time to selling, marketing, and other aspects of business management because you do not have to waste time in the collection of debts.
Drawbacks of Debt Factoring
One of the main drawbacks of debt factoring is the fee. This may vary depending on the credit ratings of your customers, the stability of your business, your volume of sales, and the payment terms of the factor you are working with. Additionally, if your customers do not pay their bills, you may need to reacquire the invoices or exchange them for others of equal value.
For more advice on debt factoring as a business financing solution, get in touch with Rushview Commercial Funding.