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Unraveling Invoice Factoring: A Smart Choice for Small Business Financing?
Are invoice factoring and account receivable financing the same thing? While the two terms often appear interchangeably, they represent different methods of harnessing the power of your invoices or accounts receivables for quick access to working capital. In essence, factoring companies, such as American Credit, purchase your invoices at a negotiated discount, while banks require you to utilize these invoices as collateral to secure a loan. To put it simply, factoring is about buying, while bank financing equates to lending.
Unlocking the Potential of Invoice Factoring
Even though invoices or accounts receivables are business assets, they do not represent liquid funds that can be readily deployed in your operations. With invoice factoring and account receivable financing, your business can swiftly convert these assets into much-needed cash or secure small business loans against them. This immediate liquidity helps fuel growth by facilitating business acquisitions, marketing campaigns, inventory purchases, and procurement of additional supplies, thereby offering a dynamic alternative to traditional small business loans.
Breaking Down the Mechanics of Invoice Factoring
A factoring company typically advances between 75% to 95% of the value of the factored invoices, holding the remaining 25% to 5% as a reserve. Once your customers clear their invoices, the factoring company reimburses the reserve amount, minus a factoring fee of around 1% to 3%. Thus, after all payments are collected, you are likely to receive around 97% to 99% of your total accounts receivables. Contrarily, banks usually lend between 75% to 85% of your invoice value and levy an interest rate on the loan amount, often higher than other traditional business loans.
The Edge of Invoice Factoring over Accounts Receivable Financing
Opting for invoice factoring with American Credit ensures that you retain control over billing and posting processes. You can customize your factoring schedule based on your cash-flow needs and invoice volumes. Moreover, factoring can be an accessible option even if you have a compromised credit history as factoring companies focus on your customers' creditworthiness.
Comparatively, accounts receivable financing is essentially a loan. Unlike invoice factoring, it does not provide any credit protection as you continue to own the accounts receivable invoices. Being a liability, a bank loan impacts your balance sheet and affects your debt-to-equity ratio. Contrarily, invoice factoring is treated as a sales transaction rather than a loan, thereby leaving your balance sheet debt-free. This makes it a compelling choice over traditional small business loans.
Embrace Swift, Simple, and Streamlined Invoice Financing with American Credit
American Credit is committed to providing fast, simple, and flexible invoice factoring. You can typically get pre-qualified over the phone, following which you will need to submit an application and the necessary documentation. Once all paperwork is submitted, you can receive funds in as little as 24 hours, usually wired to your account electronically. We also offer a versatile factoring facility with no minimum requirements, ensuring that you maintain control over the process. Give American Credit Invoice Factoring a consideration for your invoice financing needs and take a step towards smart small business financing.