It is an exciting time to be in business. With more different options for financing and fundraising than ever before, your opportunities can be managed in a way that fits your business; instead of finding a way to make your business fit the strategies that work with the funding. This provides a new way for companies that would find traditional business loans with fixed payments and (usually) secured assets a real challenge. Loans that are based off future sales, outstanding invoices, and other mechanisms that are less dependent on history and more dependent on the future can really help a developing business grow. One of the best ways to take advantage of this is by factoring receivables to free up your cash flow.

Factoring Benefits

Factoring is a way of gaining a cash advance on your outstanding invoices, and it is one of the lowest-risk forms of financing available to small business owners. Some factoring agreements even include explicit protection from default for the borrower, and they can do this because the borrower is not technically the one who has to repay the loan. Instead, the factor collects payment through the invoices owed to the borrower at the time the loan is made.

This allows you to use factoring receivables as a way of getting your outstanding invoices now, minus a percentage and some fees, and that can allow you to put that money to work right away. As your customers pay to factor, they will deduct their fees from the payment and forward any leftover balance to you, so you still do collect a portion of the money that was not advanced, too.

Limitations and Considerations

As you might be able to imagine, factoring opens up a lot […]