Factoring Invoices Helps Finance Start-ups

 By: Lanette Tucker
Most new companies have next to no capacity to get a loan from a bank. Most financial institutions will not entertain the possibility of loaning money to any company that has been around for fewer than three to five years, since they consider it an extremely high risk.

Younger companies also lack an extensive credit history; because of this, banks and other financial institutions cannot properly assess a company's credit-worthiness. Particularly in today's tumultuous economic climate, financial institutions simply are not ready to give money to any company that poses a risk of defaulting, unfairly hurting new or young businesses without a prior credit history. Luckily, there are a variety of other options for businesses such as these:

Accounts receivable factoring is a great option, and is perfect for any company looking to expand.

Factoring invoices or accounts receivables to increase funding is significantly easier than trying to secure a loan from a bank or other financial institution. There are no prying, intense financial audits: because the factor is more concerned with a company's customers' credit history, companies with "less-than-perfect" credit can easily qualify for invoice factoring.

Accounts receivables financing allows companies to completely avoid loans, enabling them to bankroll a project of any type. In addition to avoiding a bank, invoice factoring can reduce a company's risk, should they apply for a loan, since it minimizes the possibility of incurring additional debt.

Every business, even those with a below-average credit history, may qualify for invoice factoring. Perhaps the biggest obstacle in securing a bank loan is a company's credit, since financial institutions tend to only lend to companies with spotless credit history. Thusly, a bank would immediately deny any company that has made mistakes in the past, even if the company has strengths in other areas.

Because factoring companies collect money from a company's customers, rather than the company itself, they consider the customers' credit-worthiness, rather than the company that is factoring invoices.

Accounts receivable financing is anything but a loan. Invoice factoring and accounts receivable financing involve a business selling its invoices or accounts receivables; something that is not a loan in any form. This allows the company to appear stronger in where it counts - on their balance sheets.

A business may factor as many invoices as they like, allowing for an injection of quick cash in as little as 48 hours, a significantly smaller period of time than applying for any bank loan. In fact, it is virtually impossible to secure a loan from a bank or financial institution in this amount of time. Factoring allows your business to grow and flourish, without having to worry about a bank's approval.
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A factoring company is specialized in funding invoices from businesses with cash flow issues due to slow-paying clients. In order to completely understand the role of factoring companies, you should have a clear idea on what is factoring. Factoring basically involves a transaction through which a business sells its receivables or invoices, to a third party financial source called as a factor.
Because of the uncertainty of top line sales growth, many companies both big and small are loathe to hire new employees. In addition, the legacy costs once you add a new employee and the high cost if that employee does not work out are even larger negatives to hiring.
The basic problem faced with staffing agencies, is that they pay their temp staff on a weekly basis from their balance sheet, but don't receive payment from their contracts regularly - this short fall in cash flow must be addressed in some manner, and invoice factoring fits the bill perfectly. Factoring is a service that a very large percentage of the recruitment industry uses.

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