Your business is growing, and that means you need working capital. For high growth companies it’s possible to unlock nearly unlimited cash flow funding with smart financing strategies.
Is your company, or your client’s, managing growth? If so, then you understand the need for working capital, and that traditional funding is sometimes not made available to you when you need it.
If this sounds familiar then you do not want to overlook a fundamental financial tool that could offer you unlimited cash flow — invoice factoring.
Keep reading to learn how invoice factoring could be the ultimate growth tool you or your client have been searching for.
A strategic financing option
Have bank loans or equity investments fallen short of your expectations? Savvy business pros find strategic ways to navigate these challenges.
During periods of development and successful operations, growing companies need to access large amounts of capital – quickly and with assurance. Invoice factoring does exactly that – it accelerates your cash flow and allows you to take on new business — catapulting your growth.
New to factoring? We’ll give you the 411 below. Already in the know? Skip ahead to learn how it can help growing companies.
What is invoice factoring?
Invoice factoring, also simply referred to as factoring, is the process of selling your accounts receivables (customer invoices) to a specialized company (‘factor’) who will give you the majority of that cash up front. You’ll be able to use that capital for whatever purpose you need — instead of waiting the 30, 60 or 90 days you’d usually be stuck with.
Once the factoring company collects payment for the invoice, they’ll release the additional funds to your company minus an agreed upon reserve fee. That’s it – you can continue to factor new accounts receivables to keep your working capital topped up and your growth strategy on target.
Unlocking cash flow funding for your growing business
These are the six key reasons growing businesses and high growth companies should take advantage of factoring.
1. The application process can be quick
Factoring applications are relatively quick to complete since they focus largely on the accounts receivable in your business. The biggest requirement of factoring is that you must be generating regular and consistent sales from credit-worthy clients. Once your application is approved, you can have working capital delivered within 24 hours.
2. It’s cost efficient
A common misconception is that invoice factoring is an expensive financing option. In reality it can be a cheaper route to financing.
“If a company is offering early payment discounts, factoring is a cheaper option to gain access to money.” — Dave Kip, CEO of Best Broadcast
For businesses with healthy gross profit margins, the benefit from new sales opportunities will outweigh any costs associated with accessing working capital.
Factoring can help you say ‘yes’ to new deals and dramatically increase revenue, which can also set you up for additional growth with expanded client relationships. But if you have to say ‘no’ to deals because the cash flow isn’t there, your bottom line will suffer.
3. It’s a solution tailor made for growing companies
For many growing companies, they hit a point where their financial needs can’t be met. Banks often cap their financing, especially when past results and financial history checks don’t match their criteria.
Many banks will also be re-evaluating their lending criteria and reducing risk on their books, as shifting market conditions dictate a more conservative approach to business financing.
However, since factoring companies are focused on the quality of your accounts receivable, a growing company with legitimate invoices can continue to expand even without that prior history.
Factoring companies look forward and up, so there are no limits to your financing potential. That means unlimited cash flow.
4. You can remain in control of your business
When growing your company, you likely don’t want to give up your ownership. Where venture capital deals often require that you sacrifice some of that equity, factoring does not. Your growing company stays in your control and ownership – so the more successful you are, the more you’ll fully reap those monetary rewards.
5. You can combine it with traditional financing
Choosing between bank loans and factoring isn’t always necessary, as companies can often work with multiple financing partners at the same time.
In fact, many businesses will have a traditional bank loan for their base financing and then use a factoring partner as the business grows. Other companies will work with their factoring partner first to grow their business at a faster rate, and eventually, graduate on to add traditional bank financing.
6. You gain more than just cash
Factoring experts have great connections to other finance and business pros. They are business professionals who know that their success is also tied to your company’s success. This mutually beneficial partnership means you’ve gained a valuable advisor as part of the deal. Your Liquid Capital Principal can provide your growing business with additional advice on improving payment terms, collections, areas for expansion and new sales opportunities.