The world’s worst kept secret might just be that traditional banks really don’t like parting with “their” money. Certainly they are among the least expensive capital sources if you’re searching for a business loan; however, it really does feel like you have to pry the money from the banks first! Let’s face it, to obtain this money means having good cash flow and assets in order to secure the loan. As well, banks often require business assets, coupled with personal equity, as security. Fear not, though, there are other options. There really are. If the bank turns you away, you can still raise capital by looking for a venture capitalist, a private investor or, and here’s an excellent thought, by factoring your accounts receivable.
Hunting for a venture capitalist to back you might seem attractive at first glance, however, securing venture capital can be a lengthy process and can take anywhere from 2 to 6 months. Do you really have that kind of time? Likely not. In fact, that’s just the start. Even worse than this is the unpleasant prospect of suddenly gaining a partner who will insist on adding in his “two cents worth”. If that venture capitalist were to sink his money into your business, he would suddenly be in control and looking for his share of the profits - and that you can take to the bank (or not)! Invoice factoring, on the other hand, turns your accounts receivables into immediate cash and gives you complete freedom regarding the use of the money. Invoice Factoring doesn’t add any debt to your balance sheet but, instead, provides you with stable cash flow that, if need be, can increase along with your sales. In short, Invoice Factoring is the sale of your accounts receivable at a discounted rate. You don’t need to pay interest to the factor, nor repay any principal. No fuss, no muss- simple, straightforward, and logical.
To illustrate the difference between invoice factoring and traditional banking, below is an illustration using $500,000.
With a traditional bank loan, this initial 500 K loan, plus whatever interest accrues, would be counted as a liability on your company’s balance sheet. However, the Invoice Factoring option shows that your company’s accounts receivable would be reduced by 500 K and its cash increased by that same amount, which is why it is referred to as “off balance sheet financing”. In actual fact, the company’s total assets and liabilities remain the same but now there is 500 K cash on hand, and no bank breathing down your neck!
There is yet another important difference between these two financing options – the credit line that “looks good but isn’t really”. So, if and when you do get a credit line from the bank, there will definitely be a cap on it (and we all know it is never high enough). Inevitably, since you hope for growth and expansion of your business, this credit line eventually reaches that cap and, lo and behold, the bank becomes an interfering boss. If the company needs to increase the amount, a new application must be submitted…and there is no guarantee that it will be approved. On the other hand, Invoice Factoring can provide you with an unlimited amount of working capital depending on the volume of your company’s sales. Sounds better already! The more sales, the more invoices can be factored, thus resulting in a steady and stable cash flow. Invoice Factoring is flexible, has fewer restrictions, and is really fast! Banks? Well, no, they’re just plain scary.
Oh, and there’s yet another advantage in dealing with factors. A factor looks at the credibility of your company’s payers and their ability to pay off invoices, not your own credit history. That’s huge! Really. Creditworthy clients = access to money, money, money!
If this sounds like a good deal, it is and, better still, Invoice Factoring includes additional beneficial services to your company. Want to minimize administrative expenses and improve efficiency? Easy. Factors run the credit checks of your clients and advise you regarding their solvency, ability to pay, etc. Now you get to make informed decisions regarding your existing or new clients. You will know 100% whether to keep them on or cut them loose. Factoring companies have accounts receivable specialists (the AR team!) who do the collecting for you- no more chasing customers for payments (you’ll have to get your exercise another way). Now you are able to focus more on sales and business development which is, clearly, a much more profitable way to spend your time. There is yet another benefit (see, the good times never end)- Invoice Factoring gives you 24/7 online access to all activity reports. Never again lose sight of where your money is. Finally, if you wish, you can have your cake and eat it too- both types of financing can be combined for optimal flexibility and company growth. If the bank should happen to refuse to increase your credit limit, switch to Invoice Factoring and never miss a business beat again. Feel the Factoring Difference!