Aug 5, 2021

Why Invoice Factoring? Top 4 Reasons

Ernane Iung

Ernane Iung – President and Owner of ei Funding

Having sufficient cash flow is necessary for a business to maintain and expand their operations. (After all, companies need capital resources to take on new projects, hire new talent, expand their inventory and grow.) Yet attaining and maintaining a strong cash flow — especially in the beginning — can be daunting for growing businesses.

So if you’re struggling to keep up with rapid growth and wondering how to get funds quickly for your business, it pays to know your options. 

Invoice factoring is an effective option for businesses with immediate funding needs, bridging the time gap between your point of sale and the time you receive payment from your customers. Compared to other traditional forms of financing, factoring is low risk, quick and considerably easier.

Discover why invoice factoring is a preferred choice for your business’ immediate funding needs across diverse industries.

What Is Invoice Factoring?

Invoice factoring is the selling of business invoices (account receivables) to acquire cash for business operations. It’s cheaper, faster and lower risk compared to traditional bank loans, credit cards, merchant cash advances and other forms of business financing. This method is different from factoring inventory, which enables businesses to quickly free up cash tied up in their existing inventory by using it as collateral to secure short-term loans or lines of credit.

A factor is a third-party entity that performs your invoice factoring for your business. They are the ones who will provide the advances against your invoices for the delivery of your products or services, and as part of the service, also manage the collections of payments from your customers for you. 

Notably, invoice factoring is not only a method to manage cash flow but also an inventory factoring solution, allowing businesses to free up capital tied up in unsold stock. This makes it an essential tool for businesses that require liquidity to maintain or expand their operations without the long wait times associated with other financing methods.

Why Is Invoice Factoring the Best Option?

Many businesses opt for invoice factoring for a variety of compelling reasons. Here are the top reasons to use factoring for your business:

Reason #1: Invoice Factoring Provides Rapid Funding

Invoice factoring provides immediate cash for your operations. The increased cash, in turn, helps meet your growing business’s operational needs. Factoring can help you immediately fund:

  • Growing staffing needs
  • New products or services
  • New equipment or upgraded technology
  • Ongoing operational expenses
  • Other costs associated with your business

In our experience at ei Funding, we’ve learned that the thing that’s valued most from our clients is not the fast setup, but rather the fast funding — in the correct amounts, when and how you need it. Although we do depend on specific information to be provided in your application before we get started, we do our best to get you set up quickly, often as quickly as 24 hours from pre-approval.

Compared to bank loans, merchant cash advances and other traditional forms of business financing, invoice factoring is fast and convenient.

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Reason #2: You’ll Receive 80 – 90% of Your Invoice as a Cash Advance

At ei Funding, we advance 80 – 90% of the face value of your invoices. This typically provides enough liquidity to meet your business’s cash needs, regardless if it’s for hiring, purchasing raw materials or making payroll.

Reason #3: A High Credit Score Is Not Required

While the requirements will vary depending on the lender or financial institution, it’s fairly typical for banks, and credit card companies to prioritize or even require higher credit scores. It is not uncommon for a minimum credit score of 730 to be required for bank loans and a score of 670 or higher for credit card companies.

Although a credit check and your business’s payment history are part of the credit evaluation process, factoring does not necessarily require high credit scores for your business to be approved for funding.

Reason #4: Your Business Will Have a Chance to Grow

When your business is ready to expand, you need the cash to support that growth. Invoice factoring is a safe, reliable way to fund it.

With invoice factoring providing your business the immediate funds it needs to grow and also handling the collections on those invoices, all of a sudden, as the business owner, you’ll be freed up to think about ways to grow your business, which include:

  • Increasing your marketing budget to gain more visibility for your business
  • Raising your production capacity to expand inventory to support higher sales
  • Hiring new and more qualified talent
  • Investing in improving your customer service
  • Expanding accounts into new channels or geographies

Want to Learn More About Why Invoice Factoring Is the Best Way To Grow Your Small Business?

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To learn more reasons to use factoring, access ei Funding’s complete guide to invoice factoring here. You’ll find helpful information about how other financing options compare with invoice factoring, so you can make the most informed decision possible.

View Invoice Factoring


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