As strange as it seems, factoring has been around for some time and is actually one of the easiest ways to speed up your cash flow. In the past few years, it’s become more prevalent, due to the growth and expansion of alternative financing. How much do you know about it? You probably don’t know not as much as you might think.
What Is It?
A financing company buys your outstanding invoices, paying you approximately 85% of their value. They contact your customers and let them know that they will be collecting payment instead of you. After the customer pays their invoice, you will receive the other 15%. Of course, you must pay a percentage, as well as any additional fees the company chooses to request.
Advantages vs Disadvantages
Before you decide if this is right for you, you’ll want to think about the advantages versus the disadvantages.
Quick access to working capital
Credit standing doesn’t matter
Can be expensive
How Can You Benefit from Factoring?
Typically, there are two reasons a company decides to use factoring: its quick and easy, which means it’s great for companies that need money right way but have not established their presence.
Small- to medium-sized companies benefit because it allows them to expand and serve their clients better.
Misconceptions About Factoring
There are several misconceptions about factoring, due mainly to the spread of false information. Here are a few of them:
It will alienate your customers.
It only works for large companies.
It means your company is not stable.
Factoring is gaining popularity, mainly due to the fact that banks aren’t lending money as readily as they have in the past. Instead, businesses are looking for alternatives to financing and factoring is a great option. Contact Overhead Capital Ltd. today to learn about our factoring solutions.