How A Small Business Uses Factoring

So, What Exactly is Factoring ?

Factoring is also called invoice factoring. It’s sometimes referred to as selling your accounts receivables. Whatever the vocabulary, factoring involves a third-party factoring company purchasing your unpaid invoices. The factoring company typically pays you 80-90% of the accounts, then take over full responsibility for getting that payment. Once they get paid, they pay you the rest, charging a small fee.

Factoring for Small Businesses

Many types of small businesses find partnering with factoring companies useful. Cash flow can often be hard to come by in small businesses. They often don’t have a lot in their liquid assets accounts and that can be for a variety of reasons. If a business is new and establishing itself, it’s having to make plenty of payments while growing its customer base. Maybe a small business just started hiring its first employees. Or, when trying to follow the mantra “you have to spend money to make money,” it needs to invest in marketing or advertising. Honestly, almost any business with accounts receivables could sell them to a factoring company. Certain types of businesses—big or small—can find it especially helpful.

Small Businesses That Love Factoring

Government Contractors: It’s a big deal when small or medium-sized businesses win government contracts. It’s a real “we made it!” moment. But all the bureaucratic red tape can take a while for your checks to come in. Government agencies can also require businesses to do much of the work before they even begin processing payments. Using a factoring company means you can get your money on your schedule, not the government’s.

Business-to-Business (B2B): Providing services to other businesses is known as business-to-business or B2B. It’s often a great model for a company, especially if you provide specialized or technical services. But, it can often lead to a stagnated cash flow. Your business might be on a 30-day billing cycle when your customer is on a 60- or 90-day cycle. Factoring can meet you in the middle so you’re not stuck waiting for your money.

Staffing Businesses: Staffing businesses are a great example of a business-to-business industry. Many different types of companies look to staffing businesses to help fill in seasonal employment gaps or shop for new hires. The company pays the staffing business and the staffing business pays the employees. Often, a company’s billing cycle does match up with the payroll dates. But those employees need to be paid regardless! Factoring can help fill in the gap so the business can keep on as usual and those staffers can get paid.

UC Funding for Small Businesses

Besides the above, manufacturing, security guards, and information technology industries also find factoring helpful. Your small business might fit into one of these categories, or you might have other needs. If you think factoring might work for you, contact United Capital Funding online. You can also call us at 877.894.8232. We can also give you a quick quote and discuss if factoring are right for you and your small business.