3 Key Benefits of Factoring: A Small Business Owner’s Guide
In the business world, the term factoring generally refers to accounts receivable financing, which is the process of selling your company invoices to a factoring company, in exchange for immediate cash. Cash generated through factoring is not generally used for investment or business growth, but is instead used for buying inventory, meeting payroll, and managing business expenses. There are also some considerable advantages to factoring, as opposed to other forms of financing, especially when compared to traditional loans.
How factoring works
A factoring company will generally purchase some or all of a company’s invoices at approximately 80% of their face value, at which point the factoring company owns those invoices, and becomes responsible for collecting the amounts on them. When customers pay those invoice amounts, the remaining 20% of the original face value is then returned to the selling company, after the factoring fee has been subtracted.
Any company in need of immediate cash is not likely to be helped much by applying for traditional loan, since those can take very long to process, and the approval rate is way below 50% these days. In addition, it is not necessary for a company to have really good credit to be approved for factoring, since it is the ability of the company’s customers to pay on invoices which really matters.
It’s also true that by selling off the invoices, a company no longer has to maintain a large staff of collection personnel to prompt customers for payment. Another major advantage of factoring is that, unlike a traditional loan, there is no need for collateral, because in effect the invoices themselves serve as the collateral. With no assets being jeopardized, and ownership of the company business safe as well, the company remains intact, regardless of any kind of default on the part of the invoice-selling company.
Factoring with FinCentral Capital
Factoring may be right for your small business, if you need immediate cash for maintaining cash flow. Contact us at FinCentral Capital to find out about how factoring can benefit your business, and keep things running smoothly.