Businesses that take on large projects, such as construction companies, research facilities, high-volume manufacturing, and pipeline assembly go from one project to the next in rapid succession. That allows the business to thrive and compete. The situation may also leave the business vulnerable to a lack of cash. Waiting for the customer to pay that large invoice can cause issues with meeting payroll.
Paying suppliers, getting materials for that next project, or keeping up with operating expenses may be difficult. Resolving those issues can be frustrating. A bank loan will have a long application process, interest rates, and possible rejection. The business may not have that much time to improve cash flow.
Saving a certain percentage from each project will build up reserves to carry the business through lean times. That can be of help in the future to avoid any recurrences, but will not help now. A small business loan may be possible, depending on the size of the business. Working with suppliers may be an option as well.
An alternative to a loan is spot factoring. It is a simple process that can be completed quickly with few documents required. A factoring company purchases that one invoice for up to ninety-six percent of the face value. The business receives the cash in a matter of two to three days to meet expenses or get materials for the next project.
There are no upfront costs because the fee is recovered when the customer pays one-hundred percent of the invoice. The credit history of the business is not a factor in approving the transaction. The credit history of the customer is what matters.Approval rates are high for factoring and some factoring companies assume all the risk in the event the customer does not pay the invoice.
Collection efforts will be handled by the company, leaving the business owner free to focus on the current project. Consider this option the next time cash flow is getting low. This type of factoring is done on an as-needed basis so trying it once may be wise. If the transaction does not suit the needs of the business, simply do not apply it again.