Just because the bank has said no to a loan or line of credit does not mean that your business is not successful or that there are no other options available to you.
There are benefits and drawbacks to all types of funding solutions, and it may be that you have heard of invoice factoring, but you are unsure about whether it would work for your company. Let’s consider the inherent benefits:
Accounts receivable financing is generally straightforward in comparison to bank funding:
- Simple application process, less paperwork
- Fast funding allowing use of your money within 24 hours of approval
- Higher rate of applications approved
Easy access to your money gives you the ability to pay your bills, receive supplier discounts, purchase equipment and grow your business, thus improving productivity.
Many people still think it is a disadvantage that invoice factoring companies work with your customers. This goes back to the mistaken belief that accounts receivable financing is a last resort form of financing. There are major benefits to having a factor work as your accounts receivable department. It is vital that you take the time to understand the way your factoring company works, and the professional nature of a professional AR company.
There are certainly alternative lending companies that you should avoid when it comes to last resort lending options. Make sure you understand all the terms of funding, and if the terms appear complicated, a general rule of thumb would be to avoid this type of company. If the intent is to confuse, you can be sure that this will happen. Check the contract completely before signing, and how easy it is to cancel if you are not happy with the service you are receiving.
A note about choosing your invoice factoring partner; don’t jump in with the cheapest or fastest if the other elements do not make sense. You are selecting a business partner with whom you will work very closely. Frequently, your arrangement with a factor will be stronger than interactions you may have with your bank.
Invoice factoring is available to a multitude of different types of specialist industries.
Added benefits are also available in industries such as transportation and staffing. It is a great option for B2B companies with outstanding invoices, cash flow issues and long payment cycles. It is not an option for B2C companies or companies that do not issue invoices because they are paid upon delivery, they simply do not have the invoices to use as collateral. So when the bank says no, and you can answer yes to the qualification requirements listed above, consider invoice factoring as your funding solution.