Financing Equipment with Factoring
Growing businesses have difficulty accommodating equipment purchases due to low cash flow. They may take out a bank loan right away or wait on the equipment until they have enough cash flow to cover it. You can use factoring to receive the funds that you need. Here is what you need to know about equipment financing through factoring.
What Is Invoice Factoring?
Invoice factoring is not a loan. It is a transaction where you sell outstanding accounts receivable at discount rates in exchange for cash. The company or person that purchases the accounts receivable is the factor. The factor verifies your accounts and checks the credit histories and payments of your client. If your customers have good credit and make good on their payments, then you may be able to earn up to 80 percent of the invoice value. You get the initial 80 percent upfront, while the factor holds 20 percent until the client pays. Once the client pays, the factor deducts fees and gives you the remainder.
What Are the Advantages of Factoring?
Factoring for equipment financing tends to be a less time consuming option than applying for loans. Along with being a quick option, factoring has a number of advantages. These advantages include:
- The invoices determine your financing amount rather than the equipment’s value
- The equipment isn’t at risk of repossession due to a loan default
- The criteria for approval is easier since your clients’ credit rating are checked instead
- You may receive more money through factoring than through a loan
To secure funds through factoring means that the money you receive winds up based on the amount of revenue that your clients owe. You don’t have to take on more debt that you can’t pay off later on down the road.
How Do You Buy Equipment With Factoring?
If you have cash from factoring invoices, then you can buy any supplies that your company needs. All you have to do is fill out the proper paperwork to lease or buy your equipment. Once you purchase the supplies you need, then you have them delivered right away. With factoring, you can close transactions faster.
When it comes to growing your business, you need to have the cash flow available to pay for new equipment. There are a lot of different equipment financing options. However, one of the easiest ways for small businesses to receive the funding that they need is through the factoring process.