Is Factoring Right For My Start Up
Starting a new business can be extremely difficult and hard to fund. When you cannot obtain a traditional business loan because you lack cash flow, utilizing factoring can be a great alternative. When outstanding account receivables are laying around your office, you are essentially letting working capital go to waste.
This alternative financing option involves selling your receivable to a third-party company. The financial company then reserves the rights to collect payments on the invoices from your customers. A major advantage to this is the quick cash it provides. This results in additional cash flow to build your business. Investing into your business from the start is the best way to be successful in the long run. Paying your employees, all the bills, purchasing equipment and all the other expenses can quickly add up.
Factoring can be beneficial for your start up in numerous situations. Aside from the fact that a lot of banks may not even consider lending you money without any prior business experience to refer to, it can also be great if you have numerous customers with good credit ratings and histories. Loyal clients are great to have, but you need working capital to continue growing at a steady rate.
Factoring is also perfect if you have a long sales cycle. If you have immediate sales, this form of accounts receivable financing may not be the best option for you. If you do not have immediate sales, you most likely have unpaid invoices which can be sold for working capital. If you have to deal with slow playing customers, you have working capital tied up in invoices. Letting the working capital go to waste would ruin your chances of having the necessary funds to expand.
There are, however, numerous things that it cannot do for your startup and it may not always be the most advantageous financing option. There are alternatives to obtaining working capital and keep your business going. For example, if you own other businesses it can be beneficial to borrow money from those businesses.
There are a myriad of projects and problems you are faced with as a new business owner. One of these questions is how to obtain the necessary financing. Selling outstanding accounts receivables to obtain financing for your business can be a great way to initially finance your business. A solid customer base is not useful if you do not have working capital to keep your business going. Factoring can be the answer to your financial distress.