Keep your cashflow rolling
You're Not a Loan: Factoring Companies Are Here to Help!
There are many things that can disrupt a business's cash flow, and one of them is late or unpaid invoices. According to Investopedia, more than 30% of businesses, unfortunately, experience difficulties with late or unpaid invoices. This is where factoring companies come in.
What Are Factoring Companies?
To understand what factoring companies do, let's first look at how most businesses operate. It's normal for businesses to extend credit to their regular clients as this helps you meet your sales goals. However, since there's a waiting period for the client's payment, this can cause all sorts of problems. You may not have enough cash to cover other immediate needs, such as overhead costs, purchase of new inventory, and employer wages. So what should a company in such a situation do?
They can contact a factoring company to sell their accounts receivable or unpaid invoices. When your business factors its invoices, it can sell them for up to 90% of the value. This frees up the cash they need for other transactions. The factoring company then waits for payment from the client, from which they deduct a factoring fee. Factoring companies generally calculate their fees based on a variety of factors such as the amount on the invoices, the length of the invoice terms, and the credit quality of your customers.
Benefits of Working With Factoring Companies
Factoring invoices offers many advantages to businesses that are struggling with their cash flow. Instead of waiting long periods for customers to pay their outstanding bills, you can quickly free up the cash that's held up sooner after shipping inventory and invoicing a customer. This usually happens more quickly than the traditional lending process, which can take several weeks before your company receives the funds it needs.
That means when you have cash flow problems, you don't have to get into debt. In addition, should you choose to, factoring takes the burden of payment collections off your shoulders. When you sell your accounts receivables, the factoring company typically now has the full rights to those unpaid invoices. They will undertake debt collection on your behalf, leaving you more time to do what you do best.
Factoring Is Not a Loan
One of the biggest advantages of factoring your invoices is that this is not a loan. While taking out a loan can be beneficial to businesses in some instances, it may be difficult to qualify for the loan you need. In addition, financing might mean steep interest rates, so you may want to avoid getting into debt for this particular reason. In any case, factoring becomes a viable alternative. Similarly, a factoring company is different from a traditional lender because they don't give out loans.
Factoring companies purchase your invoices which, unlike the traditional lending process, doesn't impact your credit score. However, if the factoring company performs a credit check, your company's credit score may only take a small dip, which quickly recovers. Overall, factoring is a great option for businesses that have been turned down for financing by traditional lenders and those that are looking to avoid taking on more debt. The good news is that factoring companies offer flexible arrangements where you can negotiate the best possible terms to fill in temporary gaps in cash flow.
Choosing the Right Factoring Company For You
As mentioned, if you're dealing with a cash flow crunch, factoring is an option that's well worth looking into. Instead of waiting for a crisis to happen, you can take control of the situation by comparing the best factoring companies. When doing so, there are several factors you have to consider. For instance, you should plan to work for a factoring company that has been in business for a long time (more experience), and that offers flexible fees, terms, and funding limits. The good news is that there are plenty of good providers on the market, so you should be able to locate an option that works for you. Ideally, you want a factoring company that operates with complete reliability, honesty, and transparency so that you can sell your account receivables with minimal hassle and get the cash you need.
Managing cash flow is an essential component of running a business. However, if you regularly deal with late or unpaid checks, then you could be in trouble. This can easily be solved by working with a reputable factoring company. As an experienced, reputable, and reliable factoring company, we are here to help you maintain a smooth cash flow, so don't hesitate to get in touch with Atlas Factoring LLC today.
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