As every business owner knows, working capital is indispensable to support the day-to-day operations of a company. But does it make sense to use invoice factoring for working capital? Keep reading to discover the answer.
Invoice Factoring for Working Capital: Is It a Good Idea?
Yes, invoice factoring is a good way to get working capital. In fact, you could make the case that invoice factoring is the best way to get working capital when you compare it to other alternatives such as bank loans and credit cards.
What makes Invoice factoring such a good option for working capital? Easy: as we’ll see in the next section, factoring offers a powerful combination of features: it’s fast, flexible, and doesn’t generate debt.
How To Get Working Capital for Your Business?
Any business owner looking to get working capital will have three basic options: invoice factoring, business loans, and revolving lines of credit. Let’s see what are the pros and cons.
Invoice Factoring
In invoice factoring, you sell your unpaid receivables to a company called factor, which pays you immediately and then collects the payment from your client in exchange for a small fee.
To learn more about how factoring works, check out our video “How Does Factoring Work?”
Pros
- Fast and flexible
- Doesn’t generate debt
- Easy to scale and control
- Easy to get
- It can shield you from bad debt if you choose non-recourse factoring
Cons
- It only works for companies with a substantial amount of unpaid receivables
Business Loan
A business loan is an arrangement where an institution (such as a bank or credit union) gives you a large amount of money which you agree to repay in monthly installments over an agreed-upon period of time.
Pros
- You can borrow large amounts of money (provided you are approved)
Cons
- Generates debt
- It can take a long time to get the money
- It’s often difficult to get approved
- If interest rates increase, your rate may also increase (in the case of variable interest rates)
Revolving Line of Credit
A revolving line of credit is a line of credit that remains open indefinitely even after you’ve paid the balance. Credit cards are the most common example of a revolving line of credit.
Pros
- You can borrow only what you need
- Constant access to capital
Cons
- Easy to spiral into debt if you’re not disciplined
- Requirements can be strict (good credit score)
- If interest rates increase, your rate may also increase (in the case of variable interest rates)
Wrapping It Up
When it comes to getting working capital for your business, there are three basic tools at your disposal: invoice factoring, business loans, and revolving line of credit.
Of these, invoice factoring is the option that combines convenience and flexibility plus one key advantage: it doesn’t generate debt.
Looking to get started with receivables factoring? Contact ACS Factors today. We are able to advance cash on receivables for companies anywhere in the US!
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Contact us today by email (info@acsfactors.com) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube.
