A shocking 20% of small business in the U.S. fail in their first year while a further 50% of the survivors fail in their fifth. For 82% of these businesses that go belly up, cash flow issues are the main reason for their downfall. In the race for survival, small companies and startups often have to look for funding away from traditional financiers who are not very friendly.
Invoice factoring is one way these firms make up for their lack of conventional loans for small businesses. Invoice factoring enables a company to convert its accounts receivable into immediate cash. A factoring company will purchase existing invoices that qualify and advance you the funds at a commission. Here are some reasons why you should take advantage of invoice factoring.
1. Ease of Access
It is no secret that accessing traditional loans for small businesses firms can be a nightmare. Whenever you are applying for conventional small business credit, you face many barriers. You will be expected to possess a particular level of sales that many times might be beyond the reach of small businesses and startups.
In addition to sales, other requirements you would need to fulfill include furnishing the financier with a balance sheet, income statement, and tax returns. Don’t forget that you will need to be operating profitably for a prescribed period (up to a few years in some cases).
The result of this kind of vetting is that many small companies will fail to secure much-needed funding via loans for small businesses which might spell the end of their existence.
With invoice factoring, you can access the finances you need in a more accessible manner. Whether you are profitable or not, and even if you are a new business, invoice factoring is within reach. Invoice factoring companies have fewer requirements that are much friendlier to small businesses. Even a startup with an invoice from a qualifying company can land financing through business invoice factoring.
2. Speed of Access
Along with conventional loans for small businesses being hard to acquire comes the fact that these loans take a lot more time to process. In many instances, this is the time small companies and startups don’t have.
Most invoice factoring arrangements can take a few days when you’re setting them up for the first time. After that, the turnaround time for subsequent invoices can be as fast as on the same day. Compared to a traditional business loan that can take several weeks or months, invoice factoring offers a speedy lifeline for small businesses to keep going.
3. Business Support
Invoice factoring companies often have exceptional support systems to help your small business or startup receive funding and get going. Unlike traditional business loan financiers, firms offering business invoice factoring work with more small businesses and are privy to their needs concerning accounts receivable capitalization.
You can receive help in person or remotely through experienced live chat assistants on their website and over the phone. For any small business or startup, that kind of immediate assistance is invaluable and a significant part of the attraction to invoice factoring companies.
4. Business Growth Channel
As a small business or startup, your principal focus is on gaining traction and looking for avenues to grow your business. A common restriction to achieving significant growth rates at this stage is usually the lack of finances to facilitate purchase order fulfillment.
Invoice factoring companies provide flexible working capital funding strategies to enable you to develop your sales pipeline. Knowing that you can fulfill a purchase order as soon as you get it frees you to think big and grow.
Additionally, invoice factoring companies help you spend your time wisely as you move from chasing debtors to focusing on critical growth areas of your firm.
Get Your Money When You Need It
When our business struggles with its cash flow, it can be at risk of failing. Getting loans for small businesses is difficult, and thus, you need to develop an alternative funding source to grow your firm. Invoice factoring uses your existing invoices to avail you of the finances you need to continue growing.