Invoice factoring is a type of business financing that’s an alternative to conventional business loans. A factor buys invoices from a business, allowing it to get cash up-front rather than having to wait for customers to pay. This type of financing has quite a few benefits, especially for smaller businesses that may not qualify for substantial bank loans. Although this type of financing has gotten more popular in recent years, it’s actually been around for some time.
Factoring Dates Back to Ancient Times
Factoring can be traced back to ancient times. It was used extensively during the Roman Empire. This was helpful for merchants who conducted business in faraway places, as Rome was one of the first global empires. Factors made it possible for these merchants to fund expeditions and to do business during slow seasons. The ancient world was largely dependent on agriculture, where weather, as well as local economic conditions, resulted in great fluctuations in crop price. Factors provided merchants with the resources that helped them survive and even thrive even when conditions were less than ideal.
The same was true for some of the great European empires, especially Britain during the height of its power. Some of England’s most prosperous companies, such as The Hudson Bay Trading Company and The East India Company used factoring to help finance their transactions as they built global enterprises. Throughout history, businesses have used factors to improve their financial situation.
The Advantages of Invoice Factoring
What has made factoring such a beneficial and influential form of financing for so many centuries? If you have a business, you typically deliver your products or services and then issue invoices to your customers. You then have to wait anywhere from a few weeks to a few months for them to pay. When you work with a factor, however, you receive payment for these invoices right away.
The top benefit of factoring is that it’s a fast way to improve your business’s cash flow. In many cases, the factor provides you with cash within 24 hours. You can use this cash to buy more inventory, upgrade your equipment, hire more help, or invest in marketing. Better cash flow help you grow your business faster. Unlike a loan, factoring provides you with cash without incurring additional debt. The factor collects payment from your customers along with a transaction fee. You don’t have to make monthly payments and interest as you would with a business loan.
Another advantage of factoring is that it’s a flexible alternative for businesses that have trouble getting loans. If you don’t have strong financials or haven’t been in business for a long time, you may get turned down by banks. Even if you can get a loan, it may not be large enough to cover your needs or it may come with unfavorable terms. A factor will usually work with you as long as you have customers to whom you issue invoices.
This creative financing option has long been instrumental in helping businesses improve their financial situation and grow faster. While factoring has taken on different forms over the ages, it has served the same basic function throughout history. It’s a viable financing alternative for all types of businesses who want to improve their cash flow.
Contact the experts at Riviera Finance to see how invoice factoring can help your business grow.