Often businesses turn automatically to banks for the working capital they need. However, getting a sufficient amount for your growing business can be a challenge.
Obtaining a business loan or a business line of credit can be more difficult than you might think. To qualify for a business loan or line of credit, the bank checks your credit. Companies with little credit or less-than-perfect credit may not qualify or only qualify for capital insufficient to meet their business needs.
Accounts receivable factoring is a quick and simple process. Whether you have no credit or less-than-perfect credit, it doesn’t matter. To qualify for accounts receivable factoring, your customers’ credit is checked rather than yours.
With a business loan or business line of credit, the bank charges interest monthly on the total borrowed amount. If a default occurs, the bank will use your inventory, equipment, and other assets as collateral.
No monthly interest payment is made with accounts receivable factoring. You receive up to 95 percent of your invoice amount. The remaining five percent is held in reserve until payment is made, after which you receive the remaining balance minus a small factoring fee. Rather than using your business assets as collateral, your invoices are used.
Many companies look to business loans and business lines of credit to aid with their cash-flow. However, with slow-paying customers business loans and business lines of credit are short-term solutions.
If your customers are still taking 30, 60 or even 90 days, it’s difficult to make your monthly payments. You may be unable to get another line of credit or business loan as these create debt on your balance sheet.
With accounts receivable factoring, it’s easier to stay current on bills despite slow-paying customers as you’re paid the same day on your invoices. The cash-flow gap is filled, making it possible for you to maintain and grow your business. When you need more working capital for your growing business, the amount of immediate cash available to you from accounts-receivable factoring grows as your business grows.
Many companies and industries turn to accounts receivable factoring as a great alternative to business loans and business lines of credit.
Advantages of using accounts receivable factoring include:
Scale Funding can offer a quote for an accounts receivable factoring line in as little as 15 minutes. Unlike business loans and lines of credit, the process is quick and easy.
Accounts receivable factoring looks at the creditworthiness of your customers rather than your credit. Start-up companies with limited credit histories or less-than-perfect credit have difficulties getting capital from a bank. Accounts-receivable factoring can provide start-ups with the capital they need to not only run day-to-day but the ability to grow as the company grows.
Unlike business loans and business lines of credit, accounts receivable factoring doesn’t create debt on your balance sheet.
There’s no limit to the amount of capital you can receive. Your factoring line can grow as your receivables grow.
With business loans and business lines of credit, your assets and inventory are used as collateral. The risks are lower for accounts receivable factoring as your invoices are used as collateral rather than your business assets.
Companies use a business loan or business line of credit to get the cash they need to operate and grow their companies. Business loans and business lines of credit can solve this issue for a few months, but it’s inevitable that you will need more capital in the future. As your business grows, your cash-flow gap may get larger as your customers continue to pay slowly. Accounts receivable factoring bridges the cash-flow gap by providing you with same-day cash for your invoices.
Accounts receivable factoring is a cash-flow solution to almost any sized business in almost any industry. If your customers are slow-paying and you need working capital to maintain and grow your business, accounts receivable factoring could be the solution for you.