How to Use Business Factoring to Finance Your Small Business
When most owners first start their businesses, they will often find it hard to pay themselves as they need any cash they have to help keep their business afloat. However, once they start building up their customer base, they can use factoring to help them increase their cash flow. This will allow them to not only pay themselves but also to expand their business or hire more people as their business grows.
What is Factoring?
Business factoring involves selling a company’s accounts receivable to a third party financial company, known as the factor. This is done to help provide a business with cash to help them pay their vendors, pay their employees or expand their company. Companies who do this don’t have to wait until their customers pay them to get the cash they need.
Business Finance Options
If you are starting a small business, you have some options for financing your company, but most of them are dependent on your credit rating. You can finance it by applying for a business loan, but when you apply for a loan you usually need collateral, as well as good credit. In many cases, you can use your own home as collateral, but if your business fails, you could end up losing your place to live.
Another way to finance your company is by finding investors to help you raise cash. While this can be a good option for many people, if your investors want to be active participants in your company, you could quickly lose control of your business. You could easily find yourself at the mercy of your investors and conducting business as they want and not how you intended when you started your company.
What Are the Factoring Benefits?
Business factoring is another way to help finance your company and get the cash you need for it without waiting on your customers to pay you. You can usually get the funds you need from a financing company in as little as 24 hours, and you can get up to 85 percent of the invoice amount in cash to use for your business.
In many cases, your credit history is not referenced when you use business factoring to get cash, and you don’t need to use your home to help you secure the funds. Business factoring depends on your customers’ ability to pay and not yours. If you have a good customer base, then you can easily get the money you need by selling a finance company like Bibby Factoring your invoices.
When your customers pay their invoice, you get the remaining cash from the financing company, minus their fee. Since most start-up businesses are usually cash poor, factoring can be a good way to get the funds you need to keep your business from closing. You will get quick access to the cash your customers would pay you, except you don’t have to wait for 30, 60 or 90 days for it, but you can usually the cash you need in as little as 24 hours.