How To Figure Out if Factoring Fits Your Business
No matter what industry your company is in, you’ll have times where cash flow just isn’t where you’d like it to be. When money is tight and you still need to make payments on bills, debt and other routine expenses, you need to find a way to borrow money quickly. Though traditional business loans are an option for some businesses, they’re hard to qualify for and add to your company’s overall debt burden as soon as you accept the money. Factoring can be a great alternative, but you need to make sure it’s the right fit. Here’s how to tell if it’s right for you.
You Have Invoices You Can Factor
If you’re interested in this type of financing option, you need to make sure you have invoices that you can factor in the first place. When you factor invoices, you’re essentially selling them to a company that will pursue payments from your clients. If you don’t have outstanding invoices to sell, you’ll need to look into other financing options. However, if your business relies on invoices to receive payment for goods or services, you should be able to use them to your advantage.
Your Credit History Is Still Unproven
Factoring is flexible but you will pay for the convenience through high interest rates and origination charges each time you sell your invoices. Taking out traditional loans is still cheaper but you need to have an established credit history and stable profits to qualify for those loans. If you have neither or are still new to the industry, deciding to factor invoices will help you get the money you need quickly.
Your Loan Applications Got Rejected
Just because you meet all of the qualifications for business loans at first doesn’t mean that lenders will issue you a loan. In fact, many newer businesses still have their applications rejected and have to look for alternative financing methods to help them get through lean times. If you’re consistently getting denied loans by banks and traditional lenders, selling your outstanding invoices is a good option. As long as your customers are likely to pay in the future and have good credit on their own, you’ll be able to factor the invoices and get the cash you need quickly.
Factoring invoices is a great way to get your business the money you need when other financing methods aren’t good options. Think about your company and consider whether selling your invoices is in your best interest. If it is and you’re approved, you’ll have access to cash in a matter of days.
