Factoring receivables is something done by a variety of companies. There are many reasons why you should consider this method of obtaining cash funds.
1. You Were Denied a Traditional Bank Loan
Traditional bank loans are often difficult to get, especially when you’re in a hurry. There is a lot of paperwork that needs to be filled out. When you’re denied the loan, you can turn to factoring your accounts receivables because you’re able to use that as your means to get the money as opposed to borrowing from a bank.
2. You Have Poor Credit
Your business credit score isn’t taken into consideration when factoring receivables. Instead, the total cost of your invoices is used to determine how much money you’re able to obtain. The best part is that you don’t have to actually take a loan. Instead, you are given a percentage of the total value of your invoices. You can determine how many invoices you want to hand over based on your needs.
3. You Need Money Instantly
If you need money instantly, you might not have the time to wait two or three weeks for a loan to be approved. Many invoice factoring companies will be able to process a loan for you in a matter of hours. If you make the request on a non-business day, it might be a little longer. However, it’s faster than traditional loan processing.
4. Many Accounts Receivable Accounts Are Past Due
Past due accounts receivables can cause a real problem within your business. When you have invoices that are 60 days, 90 days, and even more days past due, you have to do something. Instead of sending all of your customers to collections, you can choose to factor all of the invoices. The factoring company will then be responsible for collecting the money.
5. You Want to Overhaul Your Accounts Receivable Department
You might not be happy with the terms of your accounts receivables. If you want to change to COD or require your customers to go through a better process to get approved for credit, you might want to factor all of your existing receivables. It will give you the cash flow you need and allow you to start with a clean slate.
By understanding some of the reasons for factoring receivables, you can make the decision to use the process when you need money. It could be just what you need to get your finances back on track.