Every business has occasional cash flow problems. This can happen no matter the size or health of your company or the industry you operate in. For many small businesses, fluctuations in income, supply costs, and market conditions can result in inconsistent cash flow. When your working capital is tight, it can slow down your business.
There are numerous ways to manage cash flow in order to keep your business in play. Invoice factoring uses your receivables as collateral, letting you harness the latent cash in your unpaid invoices. The process is simple: a factor gives you a line of credit using your outstanding invoices as collateral, and your loan is repaid as your clients pay those invoices.
Whether you are in manufacturing, transportation, distribution, or professional services, the ability to access financing quickly is crucial to your day-to-day operations. Summit Financial Resources can provide up to 90% advance rates on outstanding invoices. As a key component of your cash flow strategy, invoice factoring will get you the fast cash you need to pay suppliers, take on new orders, fund payroll, or jump on new business opportunities that come your way.
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Is invoice factoring right for your small business?
While thousands of businesses use invoice factoring to managing cash flow more effectively and efficiently, some business owners have preconceived ideas (some of them negative) about the process. We’re taking a look at four of the most common misconceptions about invoice factoring in order to help you make an informed decision about whether or not it’s right for your small business:
1 – Invoice factoring is only for large or established businesses.
Invoice factoring is a working capital solution for established businesses and startups and for companies of all sizes. Just as there are large and small businesses, there are large and small factoring companies to serve them.
Small and newly minted businesses often face an uphill battle when it comes to accessing funds from banks or other commercial finance sources. Summit Financial Resources understands that many of these businesses have reliable customers and predictable cash flow. However, small business owners that are successful in attracting and retaining large customers can find themselves in the precarious position of taking on longer payment terms and bigger orders. This often creates cash flow hurdles that limit growth.
Startups often don’t have enough credit to qualify for traditional loans and financing. In addition, traditional lenders often want to see a solid track record of success, meaning at least two years of profitability, before they will get serious about doing business with you.
Summit Financial Resources is not a bank. Our goal is to help our customers solve their operational hurdles by ensuring they have a steady stream of cash on hand. We’re collateral-focused, so we aren’t fazed by the kind of things that are going to turn off a bank, like the length of time you’ve been in business or credit issues. We can be more flexible, take more risks, and create custom financing structures that cannot be provided by banks or other commercial finance sources. Even if your business or product is brand new, if you have contracts with reputable customers and issue invoices, you can take advantage of factoring.
2 – Invoice factoring will send the wrong message to customers.
Some business owners worry that using invoice factoring might give customers the impression that they are having financial problems or are not dependable vendors. Other business owners may be concerned that the third party contacting their customers about invoice payment will be viewed more as a collections service than an extension of their accounts receivable team.
The reality is that factoring is a common practice among countless successful businesses seeking to bridge the gap between paying suppliers and being paid by customers. Invoice factoring companies are obliged to send notification to your customers that they will be responsible for handling your invoices. However, a reputable firm like Summit Financial Resources respects your relationships with your customers, and we take special care to manage payment transitions smoothly and to handle all transactions with discretion.
As companies look to streamline their accounts receivable process and banks limit traditional lending options, invoice factoring offers a proven solution to providing the working capital small businesses need to grow.
3 – Invoice factoring is a last resort.
The point of invoice factoring is to generate cash flow, not to bail out a failing business. In fact, if your small business is about to close its doors, it is unlikely that a reputable invoice factoring firm will work with you.
While Summit Financial Resources is interested in helping business owners who may have hit a rough patch, we want to work with successful customers that plan on growing and thriving. We understand that there are times when you need fast access to working capital, and our invoice factoring program is a viable strategy for securing the financing you need, when you need it.
Many companies use invoice factoring as a way to expand their businesses because the process is typically quicker and simpler than applying for a business loan from a bank. Invoice factoring firms evaluate all aspects of a company and consider a wide range of criteria to determine if the long-term potential is greater than the current difficulties. Keep in mind that your customers’ creditworthiness is what matters most to a factoring firm, so if your credit is less than stellar, you may still be able to get advances for your invoices.
At Summit Financial Resources, our priority is building long-term relationships with our clients, and we do this by getting to know you, your business, and your customers. We can assess your business quickly and determine if invoice factoring is the right solution for your short-term cash flow challenges, so you won’t have to wait weeks for an approval.
Because invoice factoring is based on cash flow and customer creditworthiness, what we care about most is that you are providing great service to great customers who are paying you. If that’s the case, your business is a perfect fit.
4 – All invoice factoring companies are the same.
It is easy to assume that all invoice factoring companies offer the same services, charge the same rates, and have the same contract terms. In reality, there can be considerable differences among providers.
Not all factoring companies have the same policies, so it’s important to ask questions and get the facts about the services provided by a firm before you decide to move forward. Once you decide on a working capital solution, review your contract carefully to understand what terms you are agreeing to and for how long.
As in any industry, some factoring companies are better than others. Small business owners must do their research and shop around to find the best fit for their needs. When you choose Summit Financial Resources as your financing company, you are not only working with a lender but with a partner invested in your success. We offer support to help you manage your business finances, including services that work with products like invoice factoring such as helping to get your factored invoices paid faster.
Small businesses involved in our asset-based lending programs also have access to our proprietary online account reporting system. This service allows you to check daily transactions and track information on the total funds received and the invoices the money has been applied to. You can access the credit reports we pull on your customers, monitor their payment trends, and adjust credit terms if necessary.
The right invoice factoring company can be an essential business partner. Summit Financial Resources is proud to have delivered hundreds of millions of dollars to help our clients cover short-term costs and invest in opportunities for long-term growth.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.