Invoice factoring and the amount available for funding relies on your company’s sales rather than the time you have been in business, personal credit score, or business credit score. Only 46% of businesses received the full amount of financing sought according to the 2017 Small Business Credit Survey. 44% to 90% of small businesses reported financing shortfalls due to insufficient credit histories and collateral.
The Small Business Administration found that 20% of small business loans are denied due to business credit scores, and nearly half of small businesses use personal credit cards to finance their company. The benefit of factoring is that you gain access to working capital without risking your credit score. Working capital funding strategies through factoring companies allow your business the financial freedom to meet deadlines and goals otherwise challenged by cash tied up in accounts receivable. Paying vendors, employees, and contractors on time improves your business credit rating, and it can even lead to supplier discounts for early payment.
Accounts receivable funding helps your business avoid late fees, litigation, and dings on your credit score. Many businesses pay their suppliers when they are paid by their customers. When your company sells on credit terms, waiting on customer payment can mean late payments to suppliers that incur late fees. These fees can amount to a drain on your already strained working capital and cash flow. Early or on-time payment practices by your business also prevent expensive court fees. Costly court fees are commonly found when a company misses payments to lenders. A defaulted loan can mean an aggressive collections process as well as taking a hit on both your business and personal credit scores.
Factoring your receivables can likely be the best option for financing your business. Whether your company can’t secure enough funding due to poor credit, a short time in business, or strained cash flow statements, factoring companies offer unique and flexible funding options. Accounts receivable financing is not a loan, so there is no debt associated with your factoring facility, nor does it show up on your company balance sheet or credit report. Waiting to get paid by your customers can stall your operations. Factoring provides your company the funding needed to grow.