Improve Cash Flow to Grow Your Business
Cash flow is the lifeblood of all businesses. Many businesses stumble due to cash flow issues, not because they are unprofitable. But many businesses don't realize that they have an unlimited source of financing available for their company’s growth.
What is invoice factoring?
Invoice factoring is the purchase of your accounts receivable invoices at a discount for a lump sum. Quicker than a loan, invoice factoring can help you turn your invoices into cash to cover payroll or another expense. When a business uses factoring, their cash flow is improved and accelerated by turning the receivables that normally sit on their books into cash.
If you sell your products or services to businesses that pay you in 30, 60, 90 days or more, MultiSource Finance has a factoring liquidity solution for you that typically generates cash within a day of invoicing. One requirement to qualify for invoice factoring is that you need to sell your products on a “final sale” basis, not as consignment or contingent sales.
Benefits of Invoice Factoring
There are definitely some advantages of invoice factoring.
- Factoring of your invoices is based on your customer’s credit, not yours.
- Does not require financial covenants or other restrictions.
- Provides needed liquidity to businesses that do not meet traditional bank lending standards, but have quality accounts receivable outstanding.
- Advance rates up to 85%.
- The amount of capital available from factoring can grow as sales grow, and is not limited by a company's equity.
Invoice factoring is available to your company even if:
- Limited operating history
- Steep projected revenue growth curve
- Marginally profitable or losing money
- Weak balance sheet
- In violation of bank loan covenants
- In forbearance or workout at a bank
- Need financing to exit an asset-based Lending facility
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Types of Businesses that Often Factor their Invoices
Startups or New Businesses:
With limited experience and credit history, finding bank financing can be very difficult for a young or startup business. Banks typically require 1-2 years of operating history for the business and that the owner have a good, extended background in the industry.
Seasonal Businesses or Project-based Businesses:
Seasonal businesses may do the bulk of their sales from May to October and see virtually no business during winter months. Project-based businesses like construction, staffing, consulting and trucking have significant peaks and valleys in sales during the year.
Both these types of businesses are often not suited to a bank loan as their sales and cash flow fluctuate throughout the year. Because factoring uses invoice-based underwriting, they are well suited to companies that have rapidly expanding and contracting sales, such as seasonal and project-based businesses.
Industries that are Out of Favor:
Changes in the economy can put some businesses in a difficult situation. Examples include technology companies during the dot-com bubble in the late 90’s or construction and real estate during the 2008 to 2013 downturn. Factoring provided a dependable, flexible option for many of these businesses and provided them much needed cash flow.
Companies that Have Hit a Bump or Two Such As:
- Operating Losses or Negative Equity
- Death of a Partner or Owner
- Failure to make payroll tax payments
- Bank calling the loan for any number of reasons
Factoring focuses on the creditworthiness of your customers instead of your business. By analyzing your customer's ability to pay, we are able to factor your accounts receivable invoices and turn them into cash.
So when your business is growing beyond your bank's willingness to lend or if you have hit a bump in the road, factoring can provide the cash flow you need.
Call us today to get a no-cost analysis of whether factoring is right for you and your business.