All businesses, regardless of size, have at least occasional cash flow issues. The problem can be even more significant for small businesses with fewer people and resources to manage the cash crunch. It’s also a common problem among companies that allow customers 30 to 90 days or even longer to pay their outstanding invoices. If you find yourself with expenses you don’t know how to pay or want to pursue business expansion, invoice factoring can help. However, it’s important to apply for this alternative form of business funding at the right time and for the right reasons.
Consider Invoice Factoring When You Need Fast Access to Cash
While bank loans are still the most popular form of business financing, applying for one may not be practical for a variety of reasons. Perhaps you know that you don’t meet the strict criteria that banks insist on for loan approval. You could be a new business owner or not have the collateral required for larger loans. Then there’s the issue of how long it takes to apply for and receive approval for a bank loan. You can count on at least a few weeks, but it’s more likely to take up to two months. That just isn’t acceptable when you need cash now.
Invoice factoring involves selling one or more of your company’s unpaid invoices to a third party. That company assumes ownership and collection of the invoice while you receive cash within a few days. It’s usually not the full amount of the invoice and you will pay interest, but invoice factoring is worth exploring when you’re in a hurry.
The approval process for invoices factoring vs. bank loans is also much simpler. You typically don’t need a long list of documents, and approval depends on your customer’s creditworthiness and not that of your own company.
A representative from Aspen Commercial Lending is available to discuss this and other financing options with you now. Please contact us to request an appointment.