Benefits of Factoring Financing
Wouldn’t you want a way for your company to have cash flow without having to give up equity to the bank?
Factoring financing is a way for companies to take out loans without losing their business equity or assets. Not having to give up equity to the bank is reason enough to work with freight factoring companies. Instead of using your own credit to get a loan, your company can use your clients’ credit.
For a great way to get cash in your business coffers using accounts receivables as collateral, use factoring financing.
What Is a Factoring Company?
A factoring company is a financial service provider that provides you with money in exchange for your outstanding invoices. They will then collect the accounts receivable from your clients.
Factoring companies are crucial for small businesses as they assist in bridging the gaps with invoice settlements, providing upfront payments of up to 90% of the total amount of the original invoice. They will purchase or discount your accounts receivables for a set percentage – called the factoring fee – of the total invoice value. This is called factoring your invoices — your business will not have to wait for your clients to pay before you can have additional cash flow.
The amount that the freight factoring company will give you is based on the value of your accounts receivable and not the amount of money you need. To determine the amount they will pay you, factors such as how much your customers owe you, your credit, the industry you are in, your business history, and the length of time it will take you to collect from your customers. Usually, though, the amount they will pay you for your invoices is calculated by multiplying the invoice amount by the factoring fee.
Now you have a way to keep your business running smoothly because you can get the money you need to continuously operate your business — you can use the line of credit they give you to pay for operating expenses or to further expand your company.
Advantages of Factoring Financing
Factoring companies can be a valuable asset to your company. There are many benefits to financing through factoring, with this list highlighting some of the most beneficial advantages that companies enjoy:
Immediate Cash Flow
One of the primary reasons you should decide to go with factoring financing is that the money you get when your invoices are factored in is immediately available to use. As the business owner, you will have the option to choose how you use the money. You can choose to use it for either or all of the following:
- Take care of a portion of, or the total of, your current daily expenses
- Pay for the salaries of your existing employees
- Hire new employees
- Finance new projects
- Purchase new equipment
- Expand your company
No Need to Give up Equity
What’s more, the factoring company will not take your business assets as collateral. You will not have to worry about your business going under or your assets being repossessed if you can’t pay back the loan – which is often the case with other financial service providers. This is because they will take your invoices as collateral instead of your business assets.
Useful for Small Businesses
Freight invoice factoring is not only most useful for large corporations but for small and locally-owned businesses as well. No matter the stage your business is in, you can use the help of freight factoring services to get the cash you need to grow your company and stay competitive. In short, factoring can help you get the financial assistance you need.
Easy to Understand
The factoring company makes it easy for you to understand what the process is, how it works, and the terms of the agreement. They will provide you with formal documentation that contains all the information you need to know, including a factoring agreement that clearly states the transaction details.
Use Factoring to Expand Your Business
Don’t wait for weeks or months before your customers pay all their invoices. With freight bill factoring, you will have immediate access to a large percentage of your accounts receivables. Whether you use the amount to pay for your daily operational costs or for your business expansion, factoring will take the stress away from having to wait for clients to pay up.