The term “alternative financing” makes some business owners nervous. After watching movies and TV shows with lenders who try to harm clients financially, some people think that real life is like that, too. The reality, however, is that different types of financing are commonly used and trusted by tons of businesses, from small companies to the largest corporations. One popular type of alternative financing is called invoice factoring. Far from hurting business owners, factoring is a great tool with lots of benefits.
Why You Can Trust Factoring
These days, the factoring process benefits from modern technology. Virtually any invoice can be used to obtain a cash advance as long as your clients have good credit. In this process, your business sells unpaid invoices to the lender, who deposits the majority of the value in your bank account right away (often 75%–85%). Once the bill is paid, you receive the rest of the capital minus a small percentage (usually around 2%).
Because factoring is so easy and effective for putting working capital in the hands of business owners as needed, it’s now used commonly by major corporations, hospitals, construction businesses and other companies. When used as a short-term infusion of capital, factoring makes good financial sense.
Why Factoring Is Important for Businesses
Cash flow is always an issue with businesses of every size. You need to invest money in the wellbeing of your business and take care of important financial obligations, but the capital needs to come from somewhere. These days, it takes at least 30 days for most customers to pay, and some ask for up to 60 days. This can leave you short on cash when it’s time for you to pay your employees or suppliers.
Factoring solves this problem by letting you get capital immediately. Because it’s not a loan, you don’t have to worry about debt, credit problems or monthly payments. Getting started is easy.
How To Find the Right Factoring Partner
With financial matters, it’s always smart to choose your lender wisely. What should you look for? First, choose a business that is honest and transparent. Good factoring businesses are happy to answer your questions. Next, look at the fees required. There shouldn’t be any hidden fees or minimum factoring amounts. The percentage charged for each transaction should be clearly spelled out. This type of alternative financing is very powerful and valuable when you choose the right partner.