Small businesses with bad credit that cannot obtain a bank loan often seek cash advances to achieve additional cash flow. Business cash advances are made against future product sales. Repayment begins immediately, as the cash advance provider either takes a portion of your ongoing sales or debits your bank account every business day.
Further, the interest charges on business cash advances can be significant – upwards of 60% or more at an annual rate. As they are structured, cash advances are a very short-term solution to cash-flow problems. And if you have multiple cash advances simultaneously outstanding, your ability to repay them can be stifled.
There is a better solution to meet your cash flow requirements. With the power of invoice factoring, you can access cash flow locked up in your receivables. In today’s economic environment, customers are often slow-paying on their invoices, often holding off paying their invoices for 60 to 90 days or even longer.
Your business cannot wait for customers to pay their invoices over this stretched-out period. You need the cash immediately for working capital requirements, including payroll, raw materials inventory, office expenses and the like.
With invoice factoring, you get the cash you need immediately. The factoring firm purchases your invoices and advances you up to 90% or more of the face value of the invoices. When your customer pays down the invoice, the factoring firm remits the balance, less a small percentage fee.
With invoice factoring, you get cash right away – when you need it. And you avoid collection issues since the factoring firm does the collecting for you.
And the factoring process operates more like a line of credit, as opposed to a cash advance, where payments begin immediately.