Avoid Financial Strain With Invoice Factoring
If you run a business that sells services or goods to other businesses, you may be able to leverage invoice factoring for immediate cash. Many smaller companies find themselves in need of operating cash flow for various reasons, and this type of financing isn’t a loan, so it works well for those businesses struggling to establish credit. Here’s how using your invoicing to fund your operating needs works.
Find Your Lender
Your first step is to approach an alternative lender that works with invoice financing and discuss your needs. Some of the reasons you may be strapped for cash are unexpected fluctuations in your cash flow or an interruption to your operations. You may also be preparing for a future profit rush, such as the holiday season or an increase in summer sales, and you need to purchase additional inventory to meet the higher demand. Discuss your needs with the financier to determine whether he or she will help you.
Sell Your Accounts Receivables
If the meeting goes well, the next step in invoice factoring is to sell a set of your accounts receivables to the financier for immediate cash. You take a group of outstanding invoices due to your company and sell them to lender at a discounted rate. Once you receive the cash, usually in the form of a line of credit, you no longer have to worry about that set of outstanding accounts receivables. The person who issued the credit line will pursue your vendors for payment.
Use the Cash for Its Need
You usually receive the line of credit fairly quickly. There is no big bank loan application process, because the lender is more concerned about your customers’ credit than your credit. He or she will be receiving payment directly from them, and you can use the cash from the outstanding invoices to reduce your financial strain. Take the money you received from the invoice sale and use it for the needs discussed with the lender.
The Benefits of Invoice Factoring
There are several advantages to this type of funding when you are looking to reduce your financial strain. Perhaps the greatest benefit is the ease in which you secure the much-needed cash. This isn’t a loan. This is a sales transaction. Once you receive the funds you’re free to move on without anything hanging over your head. This is why so many businesses use invoice factoring when they’re in the midst of financial strain. Look into it to see if it will help you with your financing needs.
To learn more about this form of financing, contact us today!