People often ask me how they can get access to cash quickly to sustain or grow their businesses.  They've heard about all kinds of financing including borrowing from banks, getting "Angel" investor funding, and raising venture capital to name a few.  They don't always understand the implications on their future business prospects if they were to secure these various types of funding (e.g. selling equity really means selling a piece of your business to new people and that means you are now responsible to those new investors...but you didn't want to work for someone, right?!?!).  There are key differences between each of these financing options.  

But, sometimes people come to me and ask, "I've heard about some way entrepreneurs and small businesses use loans and receivables to get cash, but I just don't get it!" This is actually a great way to get cash to sustain or grow a business and it is called invoice factoring or accounts receivable finance.  One easy and fast way small businesses can get access to cash quickly is to utilize their existing accounts receivable and work with a factoring company.  The simple reason is as follows:  factoring companies can use a streamlined process to provide an advance of funds to a small business quickly becuase their primary source of repayment is a customer that is already scheduled to pay the small business "very soon".  Sometimes, very soon is 30-60 days away, but it is not soon enough because the small business needs to make payroll or invest in marketing or raw materials for the next order that needs to be shipped.  A factoring company's sole purpose is to bridge that timing gap for small businesses.  There are lots of factoring companies out there, but small businesses should focus on a finance partner that utilizes the latest technology available (which should translate into faster service and fundings) and has sufficient access to capital itself (you don't want your factoring company to go out of business and not be able to support your needs).

For more information about the basics of invoice factoring and how a factoring transaction works, please click on the button below for a FREE guide.