In my last post I wrote about the small business loan options available these days.
With more and more financing options to consider, the challenge is more about picking the small business loan best suited to your type of business and your current situation. Whenever possible, traditional bank financing is hands down the best choice for long term financing. The downside of traditional bank financing is the fact banks have the highest turndown rate for small businesses.
If you need short term financing for an opportunity or emergency, you have a lot of options. One of the options to consider is called invoice discounting or factoring.
Factoring is a service where a business can sell all or some of its receivables (invoices) to a third party (called a factor) at a discount. The factoring company will advance your business up to 85% of the invoice amount then collect the full amount directly from your customer in due course. They then pay you the balance less their commission. Rates vary, as per all financing, based on the amount, term, and risk.
Factoring is best suited to B2B (business to business) companies like wholesalers or manufacturers who typically wait 30, 60 or up to 90+ days to receive payment of invoices.
For a high growth or seasonal businesses factoring it is probably the best financing option.
Here’s a few Canadian Companies that have each been in the factoring business for at least 20 years.