accounts receivable management practices

Loans For Small Businesses With Invoice Factoring

Small businesses are the largest contributor to business actions in the United States. In fact, 99.7% of all business is accounted for by the work of businesses with less than 500 employees.

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Even though they are the backbone of business transactions across the nation, there can be difficulties in operations due to financial constraints. A viable option is to examine alternative loans for small businesses.

What is Invoice Factoring For A Small Business Loan?

Three facts which offer an interesting perspective about emerging small businesses in the United States are as follows:

  • Wells Fargo Business Index estimates $10,000 is the minimum small business startup capital
  • Almost 40% of new business entrepreneurs are women and the number of women-owned businesses are growing at double the rate of male-owned businesses.
  • Customers pay late. Nearly 60% of all invoices are paid late. It is estimated that if all invoices were paid on time then small businesses could collectively hire 2.1 million more employees. That is roughly a 27% reduction in unemployment if people paid on time.

In translation, a small business owner will invest a chunk of their own capital to be constantly owed money by their customers and have money left on the symbolic table that they are unable to utilize. A large portion of those new owners will most likely be in need of useful financial services.

Invoice factoring is a viable solution to loans for small businesses because it is the utilization of said businesses own accounts. In effect, it is leveraging current accounts receivable in order to operate financially. That means it is using the revenue already created by the business to sustain itself.

How Does Invoice Factoring Work?

Direct lenders might be able to offer same day turnarounds with a live team in the office. The manner by which they operate is through the purchase of accounts receivable in order to assist with cash flow. So the funds from a client pay 90 days out can be effectively leveraged early for cash flow.

This is a service that is even offered to startups. As organizations that are often pressed for the immediate need of funds, this is a viable option as long as they have a qualified invoice from an approved company. Not having enough collateral is easily a contributing barrier to the success of an emerging small business.

Companies in growth mode need healthy cash flow in order to maintain that growth. Invoice factoring companies are basically an advance of money already earned but yet to pay out. Sometimes as much as 95% of the invoice can be obtained. This lets business continue in a well-supplied manner. In other words, invoice factoring involves loans for small businesses based on their yet to be received profits.

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