Maybe, if not used correctly.
It can be expensive if not utilized correctly or it can mean the death of your business if factoring is not available. Death would seem to be the highest expense possible.
How do you use Invoice Factoring correctly? You use it to grow your business or save your business.
Versus a line of credit from a traditional lender where the amount of money you can access is based on your company’s existing assets, Invoice Factoring is based on the assets you can generate, i.e. Invoices. The more you can sell, the more an Invoice Factoring Company can advance you against your sales.
This makes Factoring more akin to Angel Investing or Venture Capital. I like to think of Factoring or AR Funding as “Adventure Capital”. We don’t want ownership in your business, but to fund growth and credit insure all your sales. We only want a small percentage of your sales in return. You can keep 100% ownership in your company.
If you are not using Factoring or AR Funding to grow your business than it can be more expensive than a line of credit at the bank. But the real questions are:
- Will the Bank give you enough money?
- Will you outstrip your available Working Capital by staying with a Bank?
With Invoice Factoring you can have Unlimited Working Capital. If you can generate the sales, an Invoice Factoring Company can fund you. On the other hand, explosive growth scares the bank and they will ratchet back your ability to grow by only supplying limited Working Capital.
Other Business Cash Articles:
Cheap Factoring Why hide from the facts Working Capital from an Invoice Factoring Company is more expensive...