A Loan-free Solution for Businesses who Need Cash Fast
Every business at some point will have a need for fast cash. There are many reasons why this can occur, from going through a difficult financial spell or while attempting to expand. Whatever the cause, money can sometimes go out faster than it comes in, and this can lead to some serious headaches.
It is not always possible to get a loan to meet these shortages. In some instances there may not be time for the paperwork to be processed through a bank before the cash is needed. Other times it is about the hefty interest rates some companies may be assessed with their loan repayment plans.
When instances like this do happen, there is a solution. This is where invoice factoring step in. The companies make it possible for businesses to have money quickly, without being left with a large loan to repay.
The money is paid in return for accounts receivables the company has on hand at the time they approach the factoring company. The factoring business accepts these receivables, paying only a portion of what the bills total. This company will then be responsible for collecting and keeping the money from these invoices. The cash paid to you by the factoring company is yours to do with as you wish.
This type of accounts receivable financing is perfect for those companies with substantial payments due to them, but unable to wait for their clients to make their payments. Obviously, it is not just free cash as there is a loss of revenue compared to what would be collected from the invoices otherwise, but it can help to avoid late fees, high interest rates or having your creditors shut off an account.
There are multiple ways for these transactions to be coordinated, but it is most common for it to be done quietly. Generally, those clients who have had their invoices sold in the factoring transaction will be unaware of it having occurred. This helps to prevent the business from appearing as if it is having financial problems.
This method can be used in nearly any industry. It is typically not considered a loan because the invoices are basically being sold. However, in some instances there can be concerns about who is responsible should the invoice not be paid by the client or if a product which was invoiced is then later returned. It is important that all parties have the details worked out before the deal is completed.