Why Invoice Funding Is a Better Option than a Traditional Loan

Why Invoice Funding Is a Better Option than a Traditional Loan

Two oft-appealing alternatives to bank loans are working capital business loans and invoice financing.

Invoice financing is a rather simple process to understand. A company sells its accounts receivables to a factoring company. This company will buy the invoices at a discounted price, which is usually between 70% and 90% of their value. This factor pays the selling company in cash, which the latter can use for any requirements it has in the short term.

The factor then collects on its accounts receivable, giving back the funds to the company it bought invoices from, minus a certain fee amount. This lets the company which sold its invoices get the capital it needs to keep the lights on or to grow. Debt can also be an effective option for a business to raise money, but it is not the safest or best one at all times.

Anytime an individual takes out a traditional loan, they are putting their business at risk when they are unable to repay it. Debt can put your business under a great amount of stress since if you are unable to repay what you owe, you may need to give back the property which you bought with the debt.

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