When you are in need of funds, the lending industry has an array of options for you. Each product in the lending industry is designed for a specific purpose. For example, a car loan is to finance a car. A home loan is to finance a house. Similarly, there is asset based finance factoring, merchant cash advances, lines of credit, payday loans, invoice financing, online or installment loans and several other products. In this article, we will cover the advantages of factoring. Let’s understand this with an example. You provided your service or delivered an order to your client. Now you are waiting for the payment from the client. However, you need cash flow to run your business, meanwhile. This is where you can take advantage of finance factoring to get the funds you need.
The following are the advantages of finance factoring:
Immediate Cash Flow
In this type of financing, a funding source called factor pays you the value of an invoice. This availability of cash can make a big difference. You are getting a new big order but you have not been paid for your previous order. Your competitors will grab the new opportunity because you don’t have funds. Factoring provides you with the cash to get new orders, cover capital expenditure and address other needs.
Focus on Operations
You don’t have to worry about collecting funds from the client when you sell off your invoice. The resources you assigned for the collection can be used to execute business operations and growth.
No Bad Debts
There are two types of factoring. One is with recourse and another without recourse. Without recourse factoring, bad debts are borne by the factor. So, you have no obligations after selling off your receivables.
No Collateral Requirement
Depending on the credit healthiness and account receivables strength, the advances are extended. You don’t need to pledge collateral security in the case of finance factoring. Even if you are a startup, you can take advantage of this option. All you need to have is strong receivables.
Quick Arrangements of Funds
Banking companies use credit union software, loan origination software and other tools to automate their operations. However, these lenders take time to provide you with funds. On the other hand, a factor provides you with funds quickly. A factoring company processes an application fast and requires fewer documents.
Not a Loan
Keep in mind that it is not a loan. It is a sale. You don’t have any liability on your business.
Customer Analysis
You get valuable advice from the factoring company. It provides you with insight into the credit strength of the party with pending receivables.
Before you find a factoring company, you need to know about the option that is right for you. Maybe, asset based finance factoring can address your needs. Or, a payday loan will work for you.