It often seems as though there are as many different types of businesses as there are grains of sand at the beach. Not surprisingly, all those different companies operate in very different ways, and not every organization enjoys consistent operations or qualifies for traditional financing but invoice factoring can help.
For example, seasonal businesses may not be eligible for traditional lending because of the lack of consistency in profits from season to season. Similarly, some companies may work with clients who take a long time to pay, which means those companies must often deal with lean times throughout the year.
Invoice Factoring Basics
In the wake of the last decade's financial turmoil, the rise of alternative funding has given businesses a variety of ways to improve cash flow. However, some methods of alternative funding – such as hard money loans – have required rather costly terms or contracts.
Invoice funding, on the other hand, is a type of funding that has been around for quite a long time. Many small and medium-sized businesses have found that factoring services companies have more cost-effective solutions than banks.
Sometimes referred to as accounts receivable financing, invoice factoring or "receivables financing," is an option for businesses that must operate with outstanding invoices. For example, a business that must regularly wait for payment from clients for anywhere from 30 to 90 days would be eligible for receivables financing.
Choosing Invoice Financing or a Loan From a Bank
Invoice factoring is an excellent option for many businesses, but there are circumstances where it might be prudent to consider both invoice funding and a traditional loan. For example, one of the ways in which a business can increase its overall credit rating is to get a bank loan and make on-time payments on the loan for several months.
A history of responsible credit usage is important for the average individual, but it's also beneficial for businesses, too. However, not all businesses may qualify for traditional financing through a bank. Invoice factoring is an excellent alternative that's easy to set up and can even help a business get a traditional loan in the future.
Qualities of the Best Invoice Factoring Companies
Just as you might with any other type of business partner, it's important to research the history and reputation of your future invoice funding company. Here are some of the essential qualities you'll want to see in your accounts receivable financing company:
When you compare prices for your invoice factoring service, it's important that those prices and fees aren't difficult to find. Transparency in pricing not only includes a set of prices that are easy to locate, but those fees should also provide clear information on the total rate for service and not just a partial or monthly rate.
As a business owner, you already know how important it is to make sure you read every word of every contract before you sign. When you read the contract for service with your future lending company, you'll be able to determine if there are any extra fees or hidden costs associated with minimum activity requirements.
A company may charge you a fees as a penalty for various problems, and an invoice factoring company is no exception. However, one of the fees you should take note of is a cancellation fee, which may be quite expensive if you decide to terminate service early. Compare the cancellation fee (if one exists) with the savings you expect from using an invoice factoring company's services.
It's important to work with a company that is responsive to your inquiries, and it doesn't matter whether you're working with your accounts receivable company, a food vendor, or the local landscaping company. You can get an idea of the type of customer service you might receive from your accounts receivable company by speaking with them a few times on the phone before setting up service.
Other Factoring Services with Security Business Capita
Are you searching for a reliable, responsive, and experienced factoring services company? Our funding service company provide affordable factoring rates and no hidden fees. For more information about our factoring services including purchase order factoring and other capital funding options, contact Security Business Capital today.