Is Invoice Factoring an option when starting a company?
Every new business hopes to join the ranks of those famous unicorns that turn profitable right out of the gate. Sadly, most startups fail to meet this goal. Even worse, the best concepts often struggle or even fail within the first few years.
According to research cited by SCORE, almost all budding companies wrestle with cash flow problems — and problems with cash flow management represent the almost universal plague that leads to new business stumbles and even failures.
These startups may have succeeded at bringing ideas to market and even attracting customers; however, 82 percent of failed new businesses just did not have enough funding to grow or, in many cases, keep operating. And for just these kinds of startups, invoice factoring could provide a solution to improve cash flow in ways that would lead to thriving, growing young companies.
Yes, startups should consider invoice factoring as a new business financing option. Find out how invoice factoring will significantly improve cash flow, how it works, and if it’s the right solution for all startups.
How Invoice Factoring Empowers Startups
The most basic kind of invoice factoring refers to selling accounts receivable to a third party. In other words, startups can convert their unpaid invoices into immediate working capital.
New businesses won’t have to wait days, weeks, or even months for their customers to pay invoices. In turn, they can use this money to service more customers, develop new products and services, pay operating expenses, expand marketing, or in whatever way best suits their goals.
Some highlights of the benefits of invoice factoring for new businesses include:
- Credit building capacity: Factoring can help establish a credit record for a business. Generally, a new company has no existing credit record making it more difficult to establish lines of credit, negotiate additional payment time with suppliers, and negotiate new contracts. Since factoring depends on the creditworthiness and financial strength of the startup’s customers, it is a great option that allows the business to meet debt obligations promptly.
- Streamline collections: Collecting payments can be stressful, but not with a dependable factoring company. Since the factoring company will be in charge of chasing customer payments, the startup can invest its time in more meaningful activities.
- Minimize risk for payment: Many non-recourse factoring companies take the credit risk away from the business. In this structure, they will shoulder all the risk of credit default once they purchase the invoice.
- Improve cash flow: The business can offer their customers credit and still invigorate cash flow by getting immediate working capital from invoices.
- Factoring is flexible: Businesses have options when factoring their accounts receivable. They have the opportunity to include all eligible customer invoices or select a few customers because they have extended payment terms.
How Does Invoice Factoring Work for New Businesses?
Capstone offers flexible factoring options while eliminating hassles. That means startups can start enjoying the benefits of better cash flow and improved efficiency right away. This list explains all the steps involved in invoice factoring a common, flexible solution for startup businesses:
- Invoice customers as usual for goods or services rendered.
- Complete an easy application and approval process to get started.
- Submit copies of invoices (or any type of progress billings) along with required documentation on the receivables chosen for invoice factoring.
- Enjoy an immediate advance that usually amounts to 70 to 80 percent of the total invoice value, depending upon the agreement.
- After the customer pays, receive a rebate for the remaining balance, minus modest factoring fees.
- Repeat when needed.
What are the Best Businesses for Invoice Factoring?
In general, invoice factoring can provide the best solution for companies doing business with creditworthy customers but have delays in cash flow because of a time gap between invoicing for goods or services rendered and getting paid. Other typical characteristics include:
- Working capital strain due to insufficient credit lines from banks and suppliers
- Immediate growth opportunity with a product, customer, project, or market share
- Sells finished goods or services to creditworthy buyers
- Losing sales and missing sales opportunities
- Backlog of orders or jobs
- Trade cycle of 60 – 150 days, or more
How to Find the Best Financing Solution for a New Business
Capstone provides essential funding requirements to emerging and growth companies. Take a moment to learn more about Capstone’s flexible options for new business invoice factoring.
Invoice factoring helps new and established businesses manage cash flow and work more efficiently. New companies can discuss their needs and concerns with a Capstone representative to choose the best financing option for their unique situation.
Contact Capstone by email or phone to tell them more about your business needs and goals, so they can help you choose the perfect option.