Free Up Cash Flow with Invoice Factoring

Business owners who are looking for a way to free up capital or to obtain the money necessary for emergencies and expansions may turn to invoice factoring for help. With the help of invoice factoring, a business does not need to wait the typical 30 to 60 days before receiving payment on an invoice. Rather, the business owner receives the money immediately. Of course, there are pros and cons associated with invoice factoring. Therefore, business owners should be sure to evaluate their situations carefully in order to determine whether or not invoice factoring is right for them.

The biggest downside to invoice factoring is the fact that it can be quite costly. In fact, invoice financing solutions typically keep anywhere from 10 to 30 percent of the invoice total. For businesses that are in an emergency situation, however, the loss may be acceptable. The same is true for a business that has a great opportunity for expansion that cannot wait until the invoices are paid.

Before a business decides to engage in invoice factoring, it is important to consider the economic conditions within the industry. Just as with any investment, an early cash-out on invoices could be a mistake in the long-run if it results in a lack of future capital. On the other hand, for businesses that need money in a couple days, invoice factoring offers a good alternative to obtaining a traditional loan. After all, it can take several weeks for a traditional loan to go through and obtaining one requires creating a business plan and having a good credit score. With invoice factoring, the funds are generally available within just 2 to 4 days and no credit check is required.

While invoice factoring is similar to obtaining a bank loan in that it provides the business with the capital it needs, it is also quite different from a loan. This is primarily due to the fact that invoice factoring involves the actual purchasing of a financial asset rather than providing a loan that must be repaid over time. Since invoice factoring does not involve borrowing money, however, the business does not take on any debt when choosing this option. Furthermore, the business does not have to worry about making regular payments to the bank.

In short, invoice factoring provides businesses with a quick way to obtain money without having to go through the hassles of obtaining a bank loan. Whether or not it is worth paying the fees associated with the process depends entirely upon the company and its needs.