One of the easiest ways to speed up cash flow for a business is through factoring. As strange as it may sound, it has been around for over 4,000 years- but not everyone understands it.
In this blog, we’ll define factoring and explain some of the related pros and cons, so you can decide if factoring is your best bet.
What is Factoring?
This is one of the oldest forms of business in the world. Traders in Mesopotamia in 2000 BC are thought to have used an early form of it. The main advantage is that it speeds up cash flow and is ideal for companies that are dealing with an increase in demand and have big orders to fill. These companies can use invoice factoring as a bride loan of sorts.
Pros & Cons of Factoring
Just like other types of financing, you’ll have to weigh the pros and cons before you can decide if it’s a good option for your business. Below, we’ll list some of the pros and cons related to this type of financing.
Pro: Provides quick access to working capital- ideal for rapidly growing companies
Pro: Credit standing doesn’t matter- ideal for new companies/turnarounds
Con: Factoring can be expensive
How is Factoring Beneficial for Your Business?
There are two reasons businesses use factoring:
It’s quick and easy
Since you don’t have to go through a financial institution and comply with their terms/conditions, it’s a great option for those who need immediate capital but haven’t been around long.
Small to medium-sized businesses can benefit from factoring in several ways. Not only does it make it easier to grow/expand, but it also makes it easier for you to service your customers.
3 Common Misconceptions about Factoring
There are several misconceptions about factoring, primarily because of misinformation that is out there. Below are three of those:
Alienates your customers
It only works for big companies
It means your company is unstable
None of these are true. The truth is, factoring could be your best bet- especially when you need fast access to cash.
As you can see, factoring is quickly gaining traction in the world of alternative financing options. If a traditional loan isn’t an option, look at your alternatives. If you want to learn more about how factoring could benefit your business, contact Porter Capital Group today. We will be happy to help!