Invoice factoring is a great tool for a business that is looking to cover its expenses without putting up vital assets as collateral. Instead, the only collateral a company needs to provide is an actual purchase order. Since the odds are slim that the order will go away after it is agreed to, the use of factoring loans can provide easy capital at a low cost to companies of all sizes. What are some of the other benefits of such a loan?
Any Company Can Use a Factoring Loan
Whether you are the head of a startup or the owner of a medium sized company, you can use a factoring loan to get access to the money you need to cover expenses. “Now that you have the money that you need to fulfill an order before the customer pays for it, you can accept work from new customers and leverage the relationships earned through those orders,” said ROD Capital Management LLC.
If you do a good job on your first order, you could get more from the same company or get referrals that could lead future jobs. Therefore, using a factoring company to finance your orders can help you grow and diversify your customer base. As a new or small business, having multiple clients decreases the risk that one mistake could result in the company going under.
You Know Your Costs Ahead of Time
One of the best reasons to use a factoring loan is that you know how much you are going to pay ahead of time. Generally, such a loan comes with a flat discount rate that is based on the size of your order and other variables. Ultimately, the goal of the factoring company is to make a profit without taking too much of your profit. When you know your cost of borrowing, it helps you quote more accurate prices to your customers, which helps from a customer service perspective.
Use Factoring Loans Whenever You Need To
There is no limit to the number of factoring loans you can take out at any given time. As long as you have an order that is about to be fulfilled and paid for in the near future, you will find a lender willing to work with you. In some cases, you may be able to liquidate your accounts receivable after an order has been fulfilled but payment is past due or only partial payment has been made.
You Don’t Have Long-Term Obligations to Worry About
When you take out a bank loan, you have to worry about making a payment every month for the next several months or years. That can seriously hamper your ability to get future loans or impact cash flow in the event that sales don’t meet projections. With a factoring loan, the obligation is fulfilled within days or weeks, which means that you get the debt off the books quickly and can look ahead to the future.
There Is No Need to Take Out Personal Loans
As a new business owner, you may gain access to funding for your company based on your own credit score and history. Unfortunately, this means that your personal finances are dangerously intertwined with your corporate finances. With a factoring loan, you don’t have to worry about personal liability issues. Typically, you don’t have to guarantee the loan or put up any personal collateral because the loan is secured with your accounts receivable. If for some reason the loan goes bad, the creditor is typically restricted to collecting corporate assets.
The Money Can Be Used For Anything
While the money from a factoring loan is generally used to fulfill an order, it can go toward any expenses related to fulfilling that order. This means that the money could be used to buy a factory, hire new employees or otherwise expand in ways that can benefit the business both today and well into the future.
Factoring loans can help almost any company stay afloat during its formative stages or grow from a startup to a major player in its industry. Therefore, if you are a business owner, it is something that you should strongly consider as a cost-effective way to manage your organization.