3 July Using Invoice Factoring for Bridge Financing
The banks are always looking for lucrative businesses and want to establish a relationship but they are unable to provide credit as either the company may not have the necessary time in business or because the financial statements don’t meet the bank’s underwriting criteria. In recent months, businesses have run into major problems and companies have suffered due to a downturn in the economy. Businesses are losing customers and as a result, sales are down and balance sheets are severely weakened. The banks are run under strict financial regulations but they still see the potential and want to lend to you in the near future as situation improves.
Invoice factoring, also known as Accounts Receivables (A/R) financing can help in these situations to improve cash flow and overall financial health of the company. As companies struggle to manage longer payment cycles and delayed payments, invoice factor financing can provide the working capital necessary to stay afloat until the company is solid enough to seek bank financing or fund invoices themselves. Invoice factor financing companies or “factor”, provide accounts receivable financing through a factoring credit line. The factor can also provide an accounts receivable/credit department management service that comes with the factoring credit line. The factors can get the company’s receivables performing at a level that can be better than before with the understanding that the company will eventually move on to bank financing when cash flow is positive again. In short, invoice factoring acts as a bridge financing mechanism which gives the company the opportunity to sustain and grow without taking on additional debt in the balance sheets.
Winning With Factoring
With invoice factoring the business has immediate access to a revolving line of credit that can provide the business with additional working capital. This frees up the businesses to invest, grow rapidly and earn healthy profits. The business is able to invest the profits back into the business and strengthen their cash positions while continuing to draw on the revolving line of credit. Business can opt for flexible factoring contracts with the understanding that the business will become profitable enough to use bank financing.
Banks Support It
In fact, the banks often refer their existing business customers to a factoring company if the bank financing is not enough for a company’s working capital needs at the time. A bank may already have given the company a business loan, but if the company is grappling with long payment cycles, such as in today’s environment, then invoice factoring is a way to access additional financing for unpaid invoices and this financing can be critical to make sure the company is able to sustain and pay back the bank’s loan.
The point of factoring is to help a business sustain and grow in any business environment. The accounts receivable financing/ invoice factoring credit line can allow a business to realize an increase in sales that otherwise would not have been realized. These sales can help companies bypass though times and allow the company to emerge into profitability. A profitable company can then replace the factoring credit line with a bank credit facility that would support its continued growth. Invoice factoring is an excellent choice for a number of industries ranging from manufacturing, distributors, importers and service companies in any vertical.