Factoring Receivables
For Financing Your Business: Is It The Right Choice?
Many small businesses sell their goods and services on credit, generating invoices for buyers to pay on later dates. These firms can leverage a form of financing known as factoring receivables or invoice factoring. Invoice factoring can help business owners access money without the headache of collecting invoices. Many lenders provide this facility to help enterprises manage their dayto-day expenses and navigate working capital requirements. Is this form of financing suitable for your business? Let’s decode this concept in detail to help you make the right choice!
Factoring Receivables: What Does it Mean?
Businesses that sell on credit tend to have many pending payments on their accounts receivables. A firm can provide its receivables ledger to the lender, passing the responsibility to collect these payments. The lender allows the firm to access cash or a secured line of credit against its receivables. Typically, businesses can get funds up to 90% of their pending payments. This arrangement is known as factoring receivables.
A different variation of this arrangement is invoice discounting. When a firm opts for discounting, it retains the responsibility of collecting the pending payments. The receivables ledger serves as collateral for getting funds from the lender.
Benefits of Factoring Receivables
Enterprises can use this financing option to leverage these key benefits:
● Quick Access to Funds: Businesses can opt for factoring receivables to get a lump sum amount in the present day instead of waiting for the invoices to be paid. Firms of all sizes can use this arrangement to access liquid cash to scale their business operations. If you seek invoice factoring through trusted finance brokers, you can potentially secure a preapproval within 24-48 hours.
● No Asset Requirement: Entrepreneurs do not need to submit their valuable assets as collateral to secure funding through invoice factoring. The receivables ledger provides the requisite security to lenders.
● Bad Credit History is not a Deterrent to Funding: Enterprises with poor credit scores and ATO debt can access cash through invoice factoring. Even if your company has been operational for a short period, you can use this financing option.
What Types of Businesses Can Benefit From Invoice Factoring?
Small and medium enterprises can use invoice factoring to scale their businesses and meet urgent funding requirements. Invoice factoring is the most appropriate financing option for companies that have inadequate access to liquid capital. This funding avenue is suitable for different forms of business: sole proprietorships, start-ups, and limited companies. Most SMEs do not have the manpower and infrastructure to follow up with debtors and chase pending payments. Opting for invoice factoring can free them from this responsibility, allowing them to pursue critical growth opportunities.
Factoring receivables may be a little more expensive than other business loans. However, many business owners prefer this arrangement as they can get high cash advances and ample flexibility with invoice factoring. Factoring receivables can be the right choice for you if:
● You sell on credit and have many pending invoices.
● You have an urgent need for money to fund business expenses.
● You are not eligible for business loans with favourable interest rates and repayment terms.
● You do not have the assets to get secured loans.
If you need more help, you should contact the top finance brokers in Australia for further clarity and guidance. They can help you secure factoring receivables financing with ease!