What You Need to Know About Equipment Financing
Many small businesses rely on heavy pieces of machinery to stay competitive in the marketplace. For example, construction companies need the best equipment possible to win bids and attract customers. A company that has just started out may not yet have the funds necessary to justify huge purchases. Fortunately, different types of equipment financing are available outside of traditional loans. One option that should definitely be considered is invoice factoring.
What Is Invoice Factoring?
Many construction companies and similar types of businesses bill customers by sending them an invoice. This is a sheet of paper that gives a detailed list of what the customer is paying for, and usually, the individual has a given amount of time, typically 30 days, to pay off the invoice. Many customers will have no problem paying off the invoice within the given amount of time. However, some clients will miss the deadline. This can be a huge inconvenience for your company because you were expecting some money to be coming in, and now you have nothing.
With invoice factoring, you sell your invoices to another company. That entity pays you for the invoice, so you get money right away. The company that bought your invoices is now responsible for collecting the debts from the customers. This gives you reliable, steady cash flow, so you are not waiting to see if you get paid. This frees up cash to make equipment financing easier. You are able to more effortlessly acquire the machinery you need to expand your business.
What Are the Perks?
Several benefits stand to be gained from invoice factoring. First, it is much easier to sell your invoices than to get a loan from the bank. It also takes far less time to get approved. You may have to wait weeks to hear back from a bank on whether you got approved for a loan. Conversely, you will hear back from the factoring company whether it wants to buy your invoices in a few days.
You also do not have to worry about interest building up or taking on too much debt early on in your company’s existence. It is a simple transaction. You sell the invoice, and you receive money. It is that simple.
You want to be positive you have the financing available to purchase expensive but essential equipment. Equipment financing can put a real strain on your business if you are not careful. Luckily, invoice factoring has been utilized by many companies to great effect, and you can benefit, too.