For any small business with accounts receivable invoices unpaid and crimping growth, factoring companies can help you by giving you cash upfront for those invoices. A factoring company will save you and your business money and give you a better deal with more flexibility than a bank loan would.
If your invoices are outstanding, a third party company like a factoring firm is much more equipped to get your money. By selling them your invoices, you will free yourself up from hiring and training the staff required to run a collections department.
Unfortunately, when someone doesn’t pay you for your services or products, getting them to pay up can be a drawn out and expensive process. The first step is finding reliable contact information for the customer or client who hasn’t paid. Since many people are familiar with dodging collections calls, getting in touch with your customer or client can be arduous.
Once you have found a way to get in touch with your indebted customer or client, convincing them to actually pay the amount owed is another tedious process with no guarantees. The less trained your staff is in making accounts receivable and collections calls, the more likely to you are to get your money. However, the cost of training and maintaining staff with these special skills is beyond what most small businesses can sustain.
If you can relate to this situation, a factoring loan may be your best choice. Factoring companies don’t look at your personal or business financial history but that of your customers to make their bid. This means that even when a bank won’t loan to you, a factoring loan is very likely to.
Instead, factoring companies focus on the accounts receivable that you are selling to them. Regardless of how your business runs, if the people who owe you money are likely to pay up when the right resources are applied, a factoring company can turn a profit – which means they will buy your outstanding dues.
Factoring companies do take percentage from the total invoice amount. In the end, loan interest gathering on an average bank loan will take much more of your hard earned cash than a factoring service will. It’s easy to get drawn in by what seems like a low interest rate on a typical loan, but it can catch up with you fast. Being in debt, even if you succeed in paying it back in a timely manner, is never a comfortable financial situation to be in. A factoring loan gives you the chance to invest in your business, stay out of debt and expand to your full potential.
Of course, to make their time worthwhile and to compensate for their services, factoring companies will withhold a percentage of money brought in from settled accounts. This means you will be getting a little less than is owed to you by your clients and customers but it is worth it for the money you save not having your own collections department.