The most common way for businesses to obtain financing is to apply for a bank loan. This is still a valid option. However, not all businesses qualify for loans. In fact, banks are getting more strict about lending money. To qualify for a small business loan, you need pristine credit and usually a certain number of years in operation. Even this, however, doesn’t guarantee that you meet the requirements of the lender.
In some cases, even if you are approved for a loan, the amount is insufficient to meet your needs. Finally, you may find that the terms are less than ideal. Paying off loans with high interest rates isn’t exactly good for the long-term financial health of your business. These are some of the reasons that many people are seeking an alternative to bank loans. One of the most creative options is invoice factoring.
How Invoice Factoring Works
Invoice factoring, which is also known as invoice financing, is an option that many businesses aren’t familiar with. Unlike a traditional loan, it doesn’t entail taking on any new debt. Factors aren’t actually lending you money. Rather, they purchase invoices or accounts receivable at a discounted rate. The amount depends on factors such as credit history, the value of the invoice and the due date.
The process is quite simple. You decide which invoices you want to submit for factoring. The factoring company establishes a credit limit for your customers. You carry on your business, as usual, delivering whatever products or services your customers ordered. You then deliver invoices to the factoring company, enabling you to receive immediate cash rather than having to wait for your customers to pay. The factoring company takes on the responsibility of collecting on these invoices.
Advantages of Invoice Financing
Factoring your invoices is a viable alternative to bank loan and offers quite a few benefits.
- Allows businesses that may not be eligible for bank loans to obtain needed funds.
- Makes it easier to meet all of your financial obligations such as payroll.
- Cash can be used for many purposes, such as investing in inventory, marketing, hiring new employees, or upgrading equipment.
- Allows you to obtain better terms with suppliers who provide cash discounts.
- Frees you and your staff from collections and lets you focus on more productive tasks.
These are some of the ways that invoice factoring can help small businesses. This is one of the most innovative ways to improve cash flow, which is essential for the health of your business. It’s an option that many businesses don’t consider because they never researched it.
How Invoice Financing Can Help Your Business
Invoice financing is a great alternative to bank financing. It’s a way to quickly improve your cash flow without incurring debt. It’s also an option that’s open to many businesses that might not qualify for bank loans. Riviera Finance, founded in 1969, is one of the acknowledged industry leaders for invoice factoring. They provide the highest cash advances in the industry, providing funding within 24 hours.