Is Factoring a Good Alternative to a Business with Credit Issues?

The waiting period for invoices is between 30-90 days. The period is quite a long time for small businesses to keep up with bills and buy new stock. You may need to find a short, quick solution while waiting for your money to be deposited.

Factoring is your solution. It involves going to a factoring company to give you a cash amount equivalent to your invoice. The money is immediately deposited into your account when you send your invoice. Most factoring companies’ first deposit is between 70-90% of your money, with the remaining amount being paid after your customer pays his dues. They only deduct between 1-5% of the money paid to you.

Factoring is a savior to small businesses. But how exactly does it help your business?

1. Ensuring Continuous Cash flow

There must be a continuous flow of money for any business to succeed. A small business doesn’t have the luxury of having cash reserves as they wait for their invoice to be processed. If there is no cash flow, the business collapses.

Using factoring gives you money in advance, allowing your business to function normally. You can make orders, pay bills, and employees. You can even have some left for investment.

2. Better than Traditional Loans

Factoring is typically more expensive than traditional loans. However, it is more advantageous than traditional loans. It does not affect your credit, as the money you receive is technically yours. Factoring does not consider your business’s credit score when evaluating you.

You also don’t need collateral when applying for factoring, as the invoice itself is collateral. Loans also take longer to process and for you to receive your money. Factoring ensures instant and continuous cash flow for your business.

3. Higher Chances of Approval

Most money lenders have to do a thorough check of your credit score, loan history, and value of your collateral before giving you a loan. This process takes time while also significantly reducing your chances of getting it. If you have credit issues, lenders will avoid working with you.

Factoring companies don’t consider the above requirements but rather your customer’s payment history. If they regularly pay and are on time, you can be assured that you have a high chance of securing the cash you need.

4. Allocating Tasks

When applying for factoring, you are essentially changing your invoice to instant cash. This allows you to do other things as the factoring company makes payment follow up with your clients. They will send payment reminders to the client and ensure you are paid on time.

Factoring companies carry out a credit check on your customers. The credit check will give you an idea of the kind of clients you are transacting with. The credit information is important as it gives you negotiation power.


Factoring is a necessary need for small businesses or businesses with credit issues. If you have credit issues, it will prevent you from going deep into debt and allow you time to sort your finances. You also get to enjoy the extra help of following up with customers for pay as you continue to grow your business. Factoring can solve small businesses and businesses with credit issues.

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