If you have questions about financing, you shouldn’t feel embarrassed. Many business owners are unsure about how different types of financing work, from merchant cash advances to invoice factoring. It’s OK to ask questions. You may discover that alternative financing programs are exactly the solution you’ve been waiting for.
What Is Invoice Factoring?
There are many ways to get working capital for your business. Applying for a loan is one option. With loans, you receive a lump sum and then need to make payments every month.
Factoring is the complete opposite. This type of financing lets you sell your business’s invoices to a third-party lender in exchange for immediate funds. This isn’t a loan, so you don’t need to make any payments after you receive the money.
This type of cash advance is also called accounts receivable funding, AR financing, and invoice financing. As long as you have customers that pay their bills on time, you can qualify for this program.
What Kind of Businesses Use AR Financing?
Many companies in numerous industries can benefit from factoring invoices. The main thing that matters is having a consistent number of invoices available. If you offer your customers terms of net 45, net 60, or net 90 days for payment, AR financing is probably a good fit for your business.
Health care companies frequently use this option. Large hospitals, small private clinics, dental practices, and chiropractors often turn to invoice factoring for funds. These businesses generally get paid by insurance companies after treating patients, and insurers have a reputation for sometimes taking six months or more to send payment.
Manufacturers, wholesale businesses, resellers, importers, exporters, and other B2B companies also receive many advantages from AR financing. They can use unpaid invoices to increase funding for inventory and raw materials as needed.
Why Is Factoring Important for Your Business?
Businesses that invoice their products and services frequently run into cash flow problems. It’s different from a retail store that sells clothing and receives payment as soon as customers make a purchase. With B2B companies, you can have a high volume of sales for one month but not receive the actual payment for several months. That can constrict your ability to handle payroll, purchase inventory, repair equipment or expand your business in other ways.
With factoring, unpaid invoices aren’t a problem. You can turn them into immediate funds whenever you need them. That way, you have the money to pay your suppliers, take care of taxes, invest in advertising and handle other everyday operations without any problems.
Seek Expert Assistance
At Monterey Commercial Capital, our friendly team specializes in commercial finance solutions. We offer a huge range of business loans that help you reach your objectives, whether you need more working capital, equipment, or inventory.