As a B2B business owner, you understand the struggles of invoice payments. Having invoices that are not paid on time and in full can negatively affect your cash flow. With poor cash flow, your business can struggle to operate on a daily basis—adding more stress to your already full plate.
As your cash flow slows down, the natural action is to look for financing options. Rather than getting financing through a bank, consider invoice factoring.
Invoice factoring is the process of selling your business outstanding invoices for an up to 96% cash advance. This process is carried out through an invoice factoring company and can help your business increase its cash flow. With invoice factoring, your business will receive payment on invoices faster than waiting to receive them directly from clients—giving you the ability to secure a strong source of working capital.
Recourse Invoice Factoring vs. Non-Recourse Invoice Factoring
There are many types of invoice factoring. The two distinctions that you should know are recourse invoice factoring and non-recourse invoice factoring.
Recourse Invoice Factoring
With basic recourse factoring, your business will sell its invoices to receive an up to 96% cash advance with low rates. The invoice factoring company will then collect on the invoices factored. In the event that your client does not pay the invoices, you will need to reimburse the factoring company the amount advanced to you.
Non-Recourse Invoice Factoring
With non-recourse invoice factoring, your business will still sell its invoices to receive an up to 96% cash advance with low rates, but you will not be responsible to repay the factoring company if your customer does not pay the invoice. This is a major benefit to business owners. This allows you to get a cash advance on your work—without the risk.
Benefits of Both Non-Recourse Invoice Factoring & Recourse Invoice Factoring
Businesses that suffer from cash flow problems due to outstanding invoices can greatly benefit from both non-recourse factoring and recourse factoring. These factoring options allow your business to get a consistent supply of cash, without the wait or the hassle of going through a bank.
When you get financing through a bank, you are taking on debt. When you use non-recourse or recourse invoice factoring, your business is simply getting access to the money already owed to it.
When you seek financing through a bank, your business will have to wait anywhere from 30, 60, or even 90 days to receive payment.
For businesses that have very poor cash flow, this may be too long for them to stay afloat. With non-recourse invoice factoring and recourse invoice factoring, your business will receive its cash advance in just 24 hours or less.
This not only saves your business valuable time, but also allows you to start making an immediate impact on operations.
Financing For Businesses with Little to No Credit
A bank will also require your business to have specific financial requirements, such as good credit, long financial history, and more. When you use invoice factoring, the factoring company approves you based on the financial strength of your clients.
Because the factoring company will take on the task of collecting payment, they will run a credit check on your clients to ensure they will receive the payment.
This is a great advantage for companies that are just starting out and have little to no credit or for businesses that have poor credit.