How to Avoid New Debt With Factoring

When it comes to your business, you want to grow and thrive as much as possible. However, expansion can require additional capital, whether it’s moving into a bigger facility, hiring new employees, or buying more assets for your company. 

In many cases, business owners believe that the only way to secure funding for these initiatives is by obtaining a bank loan. However, the downside of this process is that it can hurt your credit rating, as well as add more debt to your plate. If you already have obligations you need to pay off, going this route can be more of a burden than anything. 

Fortunately, there is another way. Today we want to talk about how factoring can help you avoid new debt while providing flexible financing for your continued growth. 


A Brief Overview of Factoring

In case you aren’t familiar with the term, factoring is when you sell your accounts receivable (outstanding invoices) to a third party company. They assess the credit rating of your clients and the viability of receiving payment from them. 

Once you come up with an agreement, you get a majority share of the invoice (in some cases, up to 90%) immediately. Then, once the client pays the remainder, you get the rest of the money, minus a factoring fee. 


How Factoring Can Help You Avoid Debt

One of the primary benefits of factoring is that you’re not borrowing money that you have to pay back. Instead, you’re borrowing against money that’s coming in already. While you may be able to wait the full 30-90 days for your customers to fulfill their payments, sometimes you need cash on hand sooner than that. 

Thus, when you use a factoring service, the money you get is yours to keep. Best of all, it doesn’t affect your credit rating because your score isn’t checked – it’s your customer’s. 

Overall, here are several situations where you would want to use factoring instead of a traditional bank loan. 

  • If You Have Outstanding Debt – paying off your debt should be a priority, not adding to it. Factoring doesn’t impact your overall debt total. 
  • If You Need Fast Cash – expanding your business may happen faster than you think, which is why it’s nice to have access to quick money if and when you need it. 
  • If Your Credit Score Isn’t Great – whether you’re still new to the industry or you have taken some risky loans in the past, your credit isn’t on trial, so you can get the money you need without incurring high-interest rates. 


Bottom Line – See if Factoring is Right for You

Not all businesses can benefit from this service, but if you have several large outstanding invoices, it may be preferable to waiting for payments from clients. See how factoring can help your business with Synergy Funding.

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