Why is Invoice Factoring Better Than A Business Loan When you need money? There are a number of options out there but many will depend on the age of the company and their credit history.
This is a huge concern as 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, also referred to as, accounts receivable financing 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.
Doesn’t require taking on debt: 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.
Money is received quickly: If a company needs money fast, there are few better options then invoice funding. In less than 7 days, a company can receive a large portion, up to 90% of their outstanding invoices. For companies with already established relationship with Southstar Capital this time can be shortened to around 24 hours. This makes it a perfect option when a company finds themselves needing 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, a company looking into invoice financing, will not be approved based on this information. While a factor may want background information on the particular company they will be doing business with, the biggest concern will be the credit of the entity (debtor) that owes on the invoice. This takes a lot of pressure off the company in need of money and makes complete sense after all, no matter how good your organization may be, if your customers don’t pay you then you probably aren’t going to turn out very successful.
YOUR COMPANY never has to pay back the money: Because the money given out 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 they were planning to pay and receive no hassle about early payment, thus increasing customer satisfaction also!
Outsourced collection duties: Not only will a Southstar Capital give the company a lump sum of money up-front, they will also handle collection duties for ALL invoices. 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. Again, this savings lowers or eliminates the financing cost!