Factoring Receivables Comes to the Rescue

There was a recent study by the Pepperdine University Private Markets Capital Projects which surveyed hundreds of privately held businesses as well as thousands of lenders and investors nationwide. This survey found that only 40 percent of businesses had access to the funds they needed to grow their business. Even though these businesses had solid growth plans, they were denied funding from traditional banks and lenders.

Author John Paglia found that instead of the projected 10 percent revenue growth most of these businesses could expect, with access to additional capital revenue growth as high as 25 percent. So what is going on? He also found that lenders and investors rejected about 90 percent of loan applications or investment proposals secured by real estate holdings, as well as rejecting 73 percent of those applications that are based on a business’ cash flow. Therefore businesses determined to pursue expansion plans are forced to turn to other funding sources.

What’s more, this study also found that about 50 percent of business owners turned to friends and family for money and only 10 percent took advantage of financing from alternative lenders. yet we all know that even funding from some alternative sources can be a challenge to obtain. Venture capitalists and angel investors tend to look at a business’ cash flow and can be hesitant to invest if those numbers aren’t healthy.

There is, however, one alternative source of funding kn own as factoring receivables which doesn’t rely on current cash flow – it relies only on the accounts receivable invoices that a company has on hand. Many aren’t familiar with factoring receivables. So what is it?

Invoice factoring is a practice wherein a business sells its accounts receivable invoices to a third party at a discount in exchange for immediate cash. This method has always been used by businesses to cover financial needs during periods in which these needs exceed cash flow. It’s not the business’ credit that’s up for inspection but rather the debtor’s (i.e., the party named on the invoice) and there’s nothing to repay – factoring isn’t a bank loan. Loans are based on your assets and the ability to pay it back. But when you factor, the funds available are based on your credit-worthy customers and are virtually unlimited. The more invoices you have, the higher your credit line is.

If you feel limited by a lack of capital from traditional funding sources, take a look at alternative funding, like factoring receivables. Don’t take unnecessary risks with your business, like prioritizing certain bills or payments over others so as to have cash on hand. The financial climate is tough, but it’s not impossible to navigate. Factoring receivables can be a quick and easy way to obtain additional capital to keep your business growing and expanding.

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