Small business owners who need fast access to working capital may find hidden value in their uncollected invoices. Assigning your interest in payments that customers owe to you is a risk-free way to access their value immediately. Here are a few advantages of using this strategy to manage revenue and handle expenses.
Keep Your Credit Intact
Small business owners must be extremely careful about managing their ongoing obligations to establish and build credit. Building up credit can be critical for your company’s long-term financial health. Utilizing too much of your available credit lines or falling behind in the payments that you owe to one or more creditors reflects poorly on your company, so a problematic credit report and the score could prevent you from accessing funding opportunities.
When you use factoring to attain funding, there aren’t going to be any negative repercussions for your credit. Since you aren’t taking on an obligation with recurring payments due, you won’t have to worry about any impact on your creditworthiness that you’ve worked so diligently to build up and maintain.
Get Past Prior Issues with Credit
While poor credit is bound to hurt your chances of qualifying for many if not most funding options, this isn’t the case with funding derived from receivables. The value of your receivables speaks for itself, so that’s what the companies who are interested in purchasing them care about. If you’ve been turned down for opportunities because of a poor score or delinquency status on active tradelines, factoring is a fantastic way to surmount this barrier to procuring working capital.
Steer Clear of High and Unpredictable Interest Charges
Before you can pay down the balance of a loan, you might end up paying several thousand or even tens of thousands of dollars in interest. Furthermore, not all loan agreements have static interest rates. You could have to contend with big increases in the percentage of interest attached to an obligation. Consequently, it’s tough to factor this obligation into your operating budget with confidence and accuracy.
Factoring spares you from these types of high-interest and variable-interest woes. Since you won’t have to waste resources paying interest, you’ll have more room in your budget to afford more expenses that have more substantive value.
Lastly, one of the most notable advantages of assigning secured interests in accounts receivable is that you won’t have to wait months for funding. With lending applications, you have to wait a long time for approval. With factoring, you can get the funds you need much faster.