Why use invoice factoring

One of the most important things you can do for your business is know what your options are for financing. Invoice factoring is one of the ways you can get money for your business. The following are a few considerations when looking to use invoice factoring in your business.

What is invoice factoring? It is where someone buys out your invoices. In other words, they pay you an amount of the money owed to you on your invoices in order to then take the right to collect on those invoices themselves. The percentage they pay varies. They may pay you 70%, and then collect the full 100% for themselves. Of course, they run the risk of not collecting. One of the nice things for you is that by using invoice factoring you no longer have to use time or man power to collect on debts, instead, you give up that right.

Credit: If you want to use invoice factoring, the first consideration is the credit worthiness of the people on the invoices. If your credit worthiness is good, it doesn't matter nearly as much because what the lenders wants to know is if their customers have good credit. If they are, they will then write a check to pay off the advance on the invoices.

Speed: If you need money quickly, this can be a great option. Usually it takes a minimal amount of paperwork, and within a week to ten days, you will have your money. This can be really nice because it means that you get what you want and aren't left waiting to hear if you have qualified or need to seek financing elsewhere. It is a great way to get money for your small business fast!

Availability: One of the important things to consider is that unlike a traditional loan, where you have to re-qualify each time you want funding, when you have a need for more revenue from unpaid invoices, you simply return to the factoring relationship. It grows as your company revenues do. It is just important that you maintain a level of credit worthiness among your credit customers. This way the lender will continue using factoring.

One of the nice things about factoring is that it is a great way to get some money while you do not have the business credit or history to qualify for a traditional bank loan. In fact, factoring can be used until you can make the transition easily. Then, when you are ready to seek alternative funding, or funding of a different nature, you have the ability to do so.

Take the time to understand what factoring actually is before you consider it as an option. You want to insure that you know what you are getting into, and are prepared for what factoring might mean for your company. Then make your decision with all the facts.