INVOICE FACTORING VS BUSINESS LOAN
There are a number of funding options out there, but many will depend on the age of the company and their credit history.
According to The Service Corps of Retired Executives (SCORE), 82% of Start-ups and Small Businesses fail because owners have a poor understanding of Cash-Flow Management and lack the ability to access it at required levels to fund their growth!
One option that is available to them is invoice factoring, or invoice financing (with some differentiations). This type of financing mostly requires that a company has customers who typically pay within terms and have outstanding invoices. Below, we will take a look at why invoice factoring is better than a business loan and when a company might be best served using this type of financing.
No Debt Added
Factoring does not require a company to take on additional debt. While it is often necessary for businesses to borrow money in order to get started and stay afloat, it is generally accepted that the less debt used, the better your Balance Sheet, Financials, Ratio’s and Investor Perception. Having debt makes it harder to get loans in the future, debilitates an organization’s leverage, and also puts a lot of pressure on companies to pay it back. Factoring allows companies to receive needed capital without the hassle and risk of using a loan.
If a company needs money fast, there are few better options then invoice factoring. In less than 5 days, a company can receive up to 90% of their outstanding invoices. After initial funding, SouthStar can provide funding within 24 hours of receiving an invoice. This makes it a perfect option when a company needs a quick infusion of cash, needs to manage cash flow, or wants to ensure they are reporting the strongest financials they can.
Simplistic, Fast Process
In order to receive a bank loan or a line of credit, it is necessary to provide a number of proofs that you are a good credit risk. A company will need to provide all of their financial statements, have very good credit, and have been in business for a good amount of time, generally more than 3 years. In contrast, invoice factoring lenders’ biggest concern will be the credit of the entity (debtor) that owes on the invoice. This non-traditional approach takes a lot of pressure off the company in need of money.
No Debt to Payback
Because the money advanced is not a loan, it does not have to be paid back. As a result, there are no payments, principal, and interest to be made. The invoice is paid back by your debtor when payment is due and they receive no hassle about early payment, in turn increasing customer satisfaction.
SouthStar Handles Collections
Not only will Southstar Capital advance the company a lump sum of money up-front, they will also handle collection duties for ALL invoices (even invoices not being factored). For businesses without a collection department, this provides a much needed and valuable service. For companies with a receivables department, this provides a HUGE savings that mitigates or eliminates the cost of financing, as well as, eliminates the need to offer discounts for receiving payment sooner than credit terms agreed upon. Therefore, lowering or eliminating the financing costs.
“After being turned down by five banks, we accepted the fact that we would have to pass on the project. Then SouthStar Capital met with us and put together a finance strategy for getting us the cash we need. They had all the answers to our questions, and their rates were very reasonable.”
– Doug, Owner of a Steel Fabrication Plant