When Can Factoring Help Your Business?

Did you know only 25% of businesses survive more than 15 years?1 Businesses often fail due to lack of financing. While strategic planning helps, growing a business can be a bumpy road. Sometimes the unexpected occurs. For example, your business may gain rapid traction that outpaces your production, or you might experience a temporary cash crunch. In situations like these, limited funding or lack of loan options can prevent you from succeeding. 

Finance leaders and  business owners need to be aware of solutions that can help them grow and succeed. Factoring is a funding solution that every business leader should be aware of as they grow their business. This article, What Is Factoring?, is a great place to start.

Once you understand Factoring, here are five instances when Factoring your accounts receivables can help your business.

#1 Your Business is Experiencing Rapid Growth 

Gaining more customers than you imagined is a business owner’s dream. However, meeting the growing demand may require increasing your production or hiring more employees, which could be a challenge without capital. With Factoring, a business can maintain its momentum by not changing customer payment terms and boost output while still covering everyday operational expenses.

#2 Your Business is Experiencing a Lack of Cash Flow

There are many reasons you may need more cash flow. For example, some businesses gain most of their revenue seasonally. Others may have extended invoice terms, making them wait longer to receive customer payments. Still others may have simply hit a rough patch with a miscalculated investment or market change. Factoring can help a business owner stay afloat, keep employees on the payroll, and fulfill vendor obligations during a temporary cash shortage.

#3 You Cannot Secure Traditional Financing

When securing a loan, most people think of turning to a bank. However, banks consider various historical financials for their approvals. If your payment or credit history isn’t pristine, it could prevent a bank from lending to you. When traditional paths to financing deny your business needs, Factoring can help. Factoring is a non-dilutive solution that leverages your accounts receivables, so you don’t have to incur more debt.

#4 You Don’t Have an Established Credit History

As we've already mentioned, banks will generally look at your financial history when approving a loan. However, you may have yet to establish a sufficient credit history, if you're a new business. In many cases, this doesn’t stop business owners from leveraging their industry connections to serve more customers, which may eventually require additional capital. Factoring focuses on your existing and future invoices, which allows businesses to continue to grow.

#5 You Want to Invest in Your Growth

When a timely investment opportunity arises, including technology, a well-positioned storefront, or a new contract, time is of the essence. Traditional financing generally takes longer to secure. However, with Factoring invoices, the process is fairly streamlined and painless. You can begin monetizing your accounts receivable within days and pursue new opportunities without disrupting your regular operations.