Often a company’s quickest method to grow to the next level is by obtaining a contract larger than any previous ones it has performed or completed. This method is desirable since it causes natural growth in a manner where there is experience, history, and a proven track record. These contracts can be with government agencies – federal, state, municipal or with publicly held or private companies. The easiest way to increase a company’s contract volume is to gradually take on more business with agencies or companies with which it’s already conducting business. However, there may be many lucrative contracts with companies or agencies where there is no previous history. In either situation, factoring can help.

Invoice factoring remains one of the fastest and flexible forms of finance. With factoring, everything focuses on the invoices being issued to a creditworthy client. Advances are made to the business as invoices are issued so the owner doesn’t have to wait 30, 60, 90 days to get paid. Since it is not a loan, it does not appear on the balance sheet of a company. By factoring you gain access to your own funds faster.

Advantages of invoice factoring:

Fast – Available in two weeks or less.

Creditworthiness – The credit shifts from the small business owner and company to the creditworthiness of the entity with whom it’s doing business. A factoring company will check the creditworthiness of that entity to give the business owners confidence in their business relationship. This makes it an excellent option for new businesses or start ups.

Alternative to Equity Lending – No ownership or equity stake is sacrificed therefore allowing owner(s) to retain full ownership and decision making abilities.

Cash Flow – The immediate positive effect on cash flow allows the small business to pay its bills faster therefore stabilizing its credit Often vendor early payment discounts can be utilized.

Grows With the Business – There are no limits with this financing as long as invoices are being issued.

Unrestricted Use of Funds – Funds can be utilized for any purpose including payroll, supplier expenses, taxes, marketing and advertising, ongoing expenses, even expenses incurred while bidding on new contracts.

Outgrown Bank Facility – If a company has outgrown a bank facility, factoring can extend credit beyond the original limit, often by paying off bank debt.

No Long Term Commitment – Traditional lending can often extend out for years with tedious monthly payments. Factoring can be set up on a selective basis with no time or volume commitment or ongoing with a minimal time frame and volume amount.

Time Constraints – Frees up valuable management time for owner(s) since credit facility is in place.

Readily Available – Factoring offers a dependable, continuous source of cash to all size businesses without having to reapply for loans or lines of credit or seeking out new investors.

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In many cases a company has a bank loan or line of credit but the amount is not enough to fund new opportunities for the company. When the bank is approached about increasing the debt, if they can’t substantiate the increase, they will refuse to extend any further credit. Invoice factoring is an option to finance the growth but since the bank debt is less expensive than invoice factoring costs, it benefits a company to keep what bank financing it has in place. However, the cost of lost profit from turning down additional work can be significant.

The best scenario would be to factor the new projects while keeping the existing bank line in place. In doing so you maximize the amount of bank funding and use invoice factoring for business growth. If your bank debt is unsecured, meaning that a financing statement (UCC1) has not been filed, then establishing a factoring relationship is straight forward. The factoring company will need a first position UCC1 on the accounts receivable being factored. If the bank has secured the debt by filing a UCC1 on your company then an agreement called an inter-creditor agreement must be established with the bank. This agreement gives the factor first position on invoices and the bank keeps a first position on all other assets. In some cases the bank will require that the factor pay them the monthly amount owed on the loan first before funds are given to you from factoring the current invoices.

In cases where the bank will not sign an agreement and there is a bank UCC1 filed it will be necessary to buy out the bank debt completely or in some cases buy down the debt to an amount where the bank removes the UCC1 filing. As above, this will free you to move forward with factoring. In this latter case you still can take advantage of some level of bank funding while using factoring selectively to grow your business profitably.

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Remember, nothing is more costly than a lost opportunity!

Have you ever seen a great growth opportunity for your business, but had to pass it up because you were unable to finance it? Have you ever looked at a large balance for your accounts receivable, but a much smaller number in your bank account?  If you can relate to any of these scenarios, there are alternative financing solutions that you may be able to utilize. As a small company there are many times when traditional financing is not available, cannot be obtained quickly enough, or is not sufficient.

Adequate working capital is often the biggest issue facing any business, but especially the small business. One of the reasons most businesses falter or fail, particularly in the early years, is inadequate working capital. Often it is completely preventable by having an increased cash flow through invoice factoring.

If your business has accounts receivable from other businesses or government, these are valuable assets that can be quickly turned into cash. It is a process that is centuries old and has been utilized by larger companies for years. It is now available to small businesses and can alleviate cash flow issues.  This form of financing is available, fast, and flexible.

The approval process can be quick and uncomplicated. After filling out a short application, your business, customers, and accounts receivables are evaluated. Funding can usually start within a two
week period and ongoing funding is available whenever you need it, limited only by your company’s growth. As soon as you issue an invoice, it is verified and funds can be advanced to your bank account usually within 24 hours. Instead of waiting 30, 60 or 90 days to receive payments from your customers, you can have immediate access to cash, usually for 70%-80% of the invoice amount.

Once these funds are advanced to you, they are available to you for whatever you choose. They can be used for business expansion, meeting payroll, increasing sales therefore increasing your profit, new product development, purchasing additional inventory, seasonal fluctuations, purchasing at a trade discount, marketing or advertising expense, paying taxes, or buying/repairing equipment. Once your customer makes a payment, you are advanced the remaining funds less a transaction fee. Invoice factoring can be utilized by many industries such as distribution, manufacturing, and professional services. It is also ideal for more difficult to finance industries such as
construction, transportation, staffing and medical.

The best feature of this form of financing is that YOU maintain the control and equity in your company.  You do not accumulate any debt, therefore your balance sheet improves. It is an ideal situation to assist in improving or establishing a credit rating. Even though bank loans or credit lines may be less expensive, this is another option to quickly and easily grow your business.

Remember…..nothing is more costly than a lost opportunity!

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