Finance 101: The Benefits of Factoring for SMBs Explained

Factoring is an excellent financing option that can provide a quick boost to the cash flow. This may be an important strategy to improve your cash flow.

Small and medium-sized businesses can particularly benefit from factoring. At AmeriDream Capital, we have helped a lot of clients avert cash flow problems by using this mode of financing. 

 In this post, you will learn about some of the benefits of this type of financing for SMBs.

1. Less Costly than Loans

Factoring involves selling credit invoices to get cash. The asset-based lending is less costly than other modes of financing. You will save on direct interest payments on loans when you go for this option.

With the financing option, you will have to rely less on bank loans. This will result in reduced operational costs and improved profitability for your company.

2. Improved Customer Relationship

With factoring, you will be able to advance credit to more customers. You can collect invoice payments quickly without having to pressurize your debtors. There is no need to tighten up the payment requirements. The result will be an improved relationship with your customers.

3. Improved Cash Flow

SMBs need to make sure that their cash flow is positive. A persistent negative cash flow can lead to financial difficulties.

Factoring allows you to easily improve the cash flow. The financing mode will help you meet working capital requirements leading to sustainable operations.

4. Reduce the Risk of Bad Debts

Your company can also reduce bad debts risk with factoring. With non-recourse factoring, the factor cannot recover payments from you in case a customer defaults. As a result, you won’t incur a loss if that situation arises.

5. Easier to Obtain Required Finance

Factoring does not require your company to have a high credit score. Moreover, you don’t need to offer any collateral to get the required financing.

Factoring firms offer cash advance of up to 80 percent of the receivable value. You can get more money from factoring as compared to loans. By choosing this route, you will be able to get the much-needed finance to meet your operational expenses.

6. Early Repayments

Factoring allows you to obtain cash immediately. The funds obtained through factoring can be used for early repayments of debts. This can result in an improved credit score.

You can also pay your suppliers early thereby receiving credit discounts. This will allow you to cut down costs and improve your profit position.

7. Business Growth

Cash obtained through factoring can be utilized to fund growth activities. You can get immediate cash with this financing method. The obtained funds can be used to expand the business. You can also invest the funds to boost business income.

Factoring is a perfect financing mode for SMBs. When selecting a factoring company, it’s important that you select a professional firm that offers the best terms. Also, you should know the difference between the different types of factoring, such as recourse and non-recourse before selecting this mode of financing. Contact AmeriDream Capital (TBG) today to find out how we can help you solve your business capital needs.

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