Home Business What Is Invoice Factoring and How Do They Help Businesses

What Is Invoice Factoring and How Do They Help Businesses

5 min read

Business executives agree that cash flow is one of the biggest challenges that any company faces. Ask any banker, and they will agree that cash is king. Even though many of these tight-fisted financial institutions were bailed out by the tax payers as insolvent and too big too fail, they have proven they are unwilling to part with much of that “found cash” to help other businesses in financial trouble. Business management teams continue to be creative in order to survive.

The Need for Factoring

With most traditional lending sources unwilling or unable to lend money, business professionals have been forced to consider alternative cash flow solutions, turning in increasing numbers to factoring houses that advance money in exchange for invoices. As often happens in the business world, where there is a demand, there is always someone willing to meet that need.

In addition to banking problems, the traditional loan sources for small businesses in particular, have been negatively impacted by a sour global economy since 2009. In the face of high unemployment rates and plunging individual investment portfolios, it is no surprise that many investment sources for small businesses have dried up. On top of that, many small business executives find it almost impossible to tap into home equity like they could in the past to access some quick cash. Just in time for many business owners, the factoring houses swooped in to save the day as a lone solution to a growing problem.

Benefits of Factoring

Compared to working with banks, business executives admit that there are many advantages to using a factoring company. Here are some of the benefits of using factoring houses for cash advances.

1. The money is usually advanced very quickly on an as needed basis.
2. The credit of the business does not have to be perfect to obtain an advance. Usually the credit worthiness of the company owing the invoices is of much more concern for factoring companies, since these companies often take over the collection process.
3. Co-signors are required for a cash advance.
4. Advances makes cash available for companies to take advantage of discounts offered by suppliers.

Future Considerations

An interesting question arises as banks continue to clutch their cash reserves, only willing to loan to a few select companies they deem creditworthy. Considering the ease of getting a cash advance from a factoring company, how forgiving will corporate executives be in the future? Most people agree that companies in need of money will take it wherever they can get it. There will be a choice at some point in the future. Of course, interest rates will always rule analytical decisions, but until economic recovery takes hold, factoring companies are the answer for many businesses.

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