Rather than taking on additional debt, businesses in need of quick working capital no longer have to worry about qualifying for traditional bank financing. Companies can instead choose to sell invoices to a factoring company in exchange for the working capital they need. Here’s a breakdown of how it works:
When a company sells a product or service to a customer, they create an invoice payable at some point in the future, depending on the agreed upon credit terms. The invoice may be due in days, weeks, or months in the future. Many businesses extend terms beyond 45 days if it means getting new business or keeping valued customers.
Traditionally, the company would wait until the customer paid the bill before having access to that cash to further the business, but not anymore. Companies can now choose to sell invoices to a factoring company at a low rate in exchange for getting access to their revenue sooner. The company can then utilize the advanced funds to cover operating expenses, pay for new marketing campaigns, buy new equipment or increase inventory, immediately rather than waiting for customers to pay.
This process prevents companies from having to take on any new debt while ensuring that the cash they need is available and all without having to establish large cash reserves. If you would like to learn more about this financial solution, fill out a rate form today! One of our Business Development Associates will review your rate request and give you call to discuss your options.