Invoice factoring has long been a way that small to medium sized businesses can bolster their cash flow by releasing cash from their current invoices or receivables. By factoring receivables, suppliers no longer have to wait 30 or more days to collect invoice payment from their clients. By accessing this money in 2-3 business days instead of 30, businesses can solidify cash flow and ensure sufficient working capital.
Capital from the sale and exchange of invoices can be used for a wide range of purposes such as covering payroll and business operations demands, expanding business territories, acquiring new clients, marketing and advertising and more. It has an almost endless amount of uses, and isn’t tied to any one specific business purpose.
As one of the oldest forms of financing, invoice factoring was first used overseas by those in textiles and apparels. As a funding method, it has been adopted for use by those in trucking and transportation, freight, oil and gas, telecommunications, staffing and many other sectors.
What is Cryptocurrency Financing?
Cryptocurrency financing is a digital form of invoice factoring that uses an open, online marketplace. In this space, tokes or bit coins take the place of currency and with some crypto currencies, “blockchain” technology platforms take the place of physical invoice factoring transactions.
Bit coin addresses and aims to eliminate some of the downsides of factoring as it currently stands. For example, with today’s business model, the firm seeking financing has to go through the invoice factoring company itself. The factor vets the invoice, runs a credit check on the client and handles the collection and financing process. For its role, it collects a fee, which is a cost to the small business.
The company serves as a middleman between the small business selling the invoices and the client remitting invoice payment. In some ways, this is viewed as an efficient system. With invoice factoring for cryptocurrency, you are essentially removing the middleman so that the small business gets a larger piece of the invoice pie.
Bit Coin Factoring Makes Financing Even Faster
With cryptocurrency financing, the function of the factor is replaced by automated systems that process invoices and vet debtors’ credit scores. By using a complicated identification system to mark each invoice so that no two are alike, invoices are purchased and sold in a global online marketplace using a new universal currency.
With invoice factoring for cryptocurrency, small businesses can unlock cash tied up in invoices right away; money is electronically transferred from account to account without delays. The small business seeking to use bit coin factoring does still pay a fee for the service will likely pay less in terms of total rate.
Bit Coin Factoring Sounds More Complicated Than It Is
To enter the cryptocurrency financing online marketplace, participants will first have to use a common or universal token system. In this way, anyone from across the globe with enough tokens can serve as a factor to buy invoices.
This cryptocurrency financing system and its technology platform is believed to allow a larger number of participants thus reducing the cost of bit coin factoring for the small business owners who use it. Participants from around the world entering the cryptocurrency system must do so using bit coins or tokens. That is they must first convert their existing currency into bit coins or tokens before participating. It is also significant to note that purchasers of invoices get paid in bit coin currency.
Will Cryptocurrency Financing Replace Invoice Factoring Companies?
Because this futuristic cryptocurrency financing model is still in its earliest stages of development, it remains to be seen whether bit coin factoring will be an industry disrupter or just another option to the alternative financing industry. The “blockchain” technology behind cryptocurrency financing is currently being built and refined by The Hive Project, which has raised (via crowdsourcing) nearly $9M to date. It will be interesting to see how the development of cryptocurrency financing will impact overall small business lending and financing.
Bit Coin Factoring Gives Small Businesses a New Financing Choice
Accounts receivables financing has seen a spike in demand in recent years since the great recession as traditional lending options such as business loans have become more difficult to obtain. With banks adopting more restrictive lending requirements and more lengthy paperwork processing, many small to medium businesses decided to try invoice factoring as simpler, more effective way to bolster their capital.
Other accessible alternative lending options, such as short term loans and merchant cash advances, have also increased in popularity. Now a new player is getting ready to enter the alternative financing market: cryptocurrency financing.