Factoring Is No Longer a Fringe Idea: Now an Impactful Solution for Fast-Growing Businesses
By Ben Hagenkord – Senior Sales Executive
In the past, the term “factoring” has been associated with a negative connotation, a taboo word in the business funding world. The misconception developed from the idea that factoring is only leveraged when a business is in desperate need of cash or in a poor financial state – but that’s not always true. In fact, factoring is an impactful solution for companies to rely on to support a period of rapid growth.
What Is Factoring?
When businesses create accounts receivable, they typically have to wait to get paid. However, the company may need the funds sooner to continue with their usual operations, or to invest in other areas of the business as they scale and grow. Factoring allows the company to access funds quickly by selling the invoices to a third party, who will pay for them at a slight discount, allowing the company to continue to operate and grow according to its needs.
When Should A Company Consider Factoring?
Contrary to the belief that factoring is used by cash-strapped companies on the brink of failure, the reality is the opposite: it is often used when a company is in growth mode. For example, a rapidly-growing company may have gained multiple large accounts in a short amount of time, signed numerous new customers, or may be looking to expand into other markets.
All of these growth initiatives are a positive testament to a company’s hard work, but they can also indicate outgrowing capital needs. According to a Forbes article, “Today’s invoice payment structure makes taking advantage of small, growing businesses far too easy. A large corporation can afford to pay slowly. SMBs cannot survive without cash.” For SMBs facing similar situations, factoring may be a promising solution.
How Does Factoring Help?
Factoring can be the solution that provides sustainable growth by allowing companies to use outstanding invoices for immediate funds without impacting the balance sheet. Instead of waiting on normal payment terms, factoring converts accounts receivable into working capital in as few as 24 hours.
Compared to other lending options, factoring has a much simpler approval process than traditional financing. According to Forbes Finance Council, “Invoice factoring may be a faster and simpler way to improve your cash flow without taking out a business loan or line of credit.” Rather than having to put your company through all of the usual due diligence, factoring underwrites your customers or your debtors, and not your company. The only documents required are accounts receivable and accounts payable, aging reports, documented financials, and the signed agreement.
Factoring provides the flexibility a growing business needs, as well as comprehensive accounts receivable management so business owners can focus on building their company and serving their clients, rather than worrying about cash flow.
So, instead of viewing factoring as a “last resort” for capital, look at it as a working capital solution designed to maintain company growth. Interested in learning more about the benefits of factoring? Reach out and we will be in touch shortly!
Ben Hagenkord is a senior sales executive at Kompass Kapital Funding, developing strong partnerships with businesses that benefit from funding solutions.