Today’s small business owners have more ways to infuse cash into their businesses than business owners of generations ago. Fifty years ago, for instance, businesses relied primarily on small business term loans to get cash to maintain cash flow, acquire new assets, and expand into new territories. Those who didn’t qualify were left with few options to turn to and often had to resort to asking friends and family for a loan. Some industries such as manufacturing, freight / transportation, and oil and gas could take advantage of accounts receivable factoring, a process where a company sells its current invoices to a factoring company for cash right away. Invoice factoring years ago was mostly used by certain industries but is today more widely available and not limited to only a handful of sectors.
Invoice Factoring Services May Not Be Suitable for All
With factoring receivables becoming a more popular option for businesses of all shapes, sizes and industries to secure cash, it has become more widely used by a variety of industries from manufacturing, freight / transportation, and oil and gas to staffing, construction, government contracting, telecommunications, information technology and more. Yet despite the growth of factoring receivables, some industries are unable to take advantage of the service due to the size of their invoices. That is, invoice factoring is a great option for businesses with large dollar-value invoices. It may not a good option for small businesses with numerous small invoices, such as retail, restaurants or those in the service sector.
Retail, Restaurant and Services Rely on Credit Card Financing
Credit card factoring, however, is a better fit for these type of businesses as the credit card receivables factoring company will assess the volume of your sales transactions rather than the value of individual invoices one by one. With credit card financing, the company will give your business cash up front based on sales that are predicted to happen in the future. The business will then pay this money back in increments over a period of time. Oftentimes, the credit card factoring companies will work out an arrangement with the business to take a percentage every month so that the business isn’t burdened with the hassle of having to pay them back. It is worth mentioning that receivables financing can be an expensive option, but for many small businesses it is a viable way to keep your business running through the difficult times.