Many owners of technology companies get starry-eyed when it comes to small business financing because they think of high profile venture capitalist funding. Though this sort of overly idealized small business funding may get a lot of press and media attention, the reality is that securing such funding is rare and out of reach for most small businesses — even those in high tech.
Fortunately, there are many other lower profile technology financing options that are equally as useful — with less glitz and glamour. For instance, IT factoring (aka invoice factoring) is one such way technology companies can get startup cash, as well as monthly incremental cash infusions to bolster cash flow.
Invoice Factoring Solves Cash Flow Concerns for Those in IT
Technology companies face cash flow problems that are unique to their industry as well as ones that are common to many small- to medium-sized businesses. IT companies moving to the business growth stage from the startup phase, for instance, may have trouble having enough cash on hand to boost inventory for huge demand. Not being able to meet customer demand can be the ruin of any IT company (since customers are unlikely to wait until the order can be fulfilled). Getting immediate cash from factoring your company’s invoices can make sure this worst case scenario never happens.
Late paying customers, or the 30- to 60-day customer payment window that is standard for many businesses (including those in IT), can cause many cash flow headaches. Technology equipment financing in the form of factoring can help:
- Improve inventory management by having enough cash available to ramp up production as needed
- Bridge payment gaps between customers
- Make sure vendors are paid on time even when customers are slow to pay
- Purchasing or leasing new technologies or equipment
- Scaling up or down depending on the flow of business
- Ensure payroll, taxes, contracts and other obligations are paid on time
Outsource Your Collections with Invoice Factoring Services
By selling company invoices to an invoice factoring company, a company can outsource its invoices, saving time and money. Overall, factoring services cost about 2 to 8 percent of the face value of the invoice, depending on the age of the receivables. IT factoring may cost slightly more than a small business loan, but it’s more accessible and less costly than some other financing options.