Why is Invoice Factoring Better Than A Business Loan?
Why is Invoice Factoring Better Than A Business Loan When you need money?
There are many options, but numerous will depend on the company’s age and credit history.
This is a considerable concern, as according to the Service Corps of Retired Executives (SCORE), 82% of Start-ups and Small Businesses fail because their owners have a poor understanding of cash Flow Management and lack the ability to access it at the required levels to fund their growth!
One option available to them is invoice factoring, also known as accounts receivable or invoice factoring (with some differentiation). This type of financing requires a company to have customers who typically pay within terms and have outstanding invoices. Below, we will examine why invoice factoring is better than a business loan and when this type of financing might best serve a company.
Doesn’t require taking on debt: Factoring does not require a company to take on additional debt. While businesses often need to borrow money to get started and stay afloat, it is generally accepted that the less debt you use, the better your balance sheet, financials, ratios, and investor perception will be! Having debt makes it harder to get loans in the future, debilitates an organization’s leverage, and 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 a few better options than invoice funding. In less than 7 days, a company can receive a large portion, up to 90% of their outstanding invoices. For companies with established relationships with Southstar Capital, this time can be shortened to around 24 hours. 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 report the strongest financials they can.
Simplistic, Fast Process: To receive a bank loan or a line of credit, you must prove that you are a reasonable credit risk. A company must provide all its financial statements, have excellent credit, and have been in business for a reasonable amount of time, generally over 3 years. In contrast, a company looking into invoice factoring 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 (the debtor) that is owed on the invoice. This takes a lot of pressure off the company in need of money and makes complete sense; no matter how good your organization may be, if your customers don’t pay you, you probably won’t turn out very successful.
YOUR COMPANY never has to repay 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 or interest. Your debtor pays back the invoice when they were planning to pay and receives no hassle about early payment, thus increasing customer satisfaction!
Outsourced collection duties: Not only will SouthStar Capital will not only a sum of money up-front, but they will up front duties for ALL invoices. This provides a much-needed and valuable service for businesses without a collection department. For companies with a receivables department, this provides HUGE savings that mitigate or eliminate the cost of financing. It also offers discounts for receiving payment sooner than the agreed credit terms. Again, this savings lowers or removes the financing cost!