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When does factoring make the most sense for your business?

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Unpaid invoices can weigh down your business. Even with strong sales and growth projections, without enough cash flow, your business will struggle. If your balance sheet isn’t where you want it to be, consider factoring as a financing strategy.

Factoring allows your business to borrow money based on expected future income from an account receivable or invoice. This makes it a particularly useful option for small and medium-sized businesses that don’t have a longstanding banking history with a primary lender.

What is invoice factoring?

In simple terms, invoice factoring is an alternative financing option that gives you access to funds that would otherwise be tied up. Most banks follow a line-based financing model, restricting their view of what is considered an asset. As a result, many businesses fail to qualify for traditional bank financing.

Through factoring, a lender buys your outstanding invoices. Although the loan amount varies, most financers will advance you as much as 90% of the value of your eligible receivables. Then, the lender collects your client’s funds to pay towards the factoring balance. Finally, they send you the remaining funds, minus applicable fees.

What makes factoring a good option?

Let’s look at a few situations where factoring is a better solution than a traditional commercial loan.

You need funds fast

When dealing with a cash flow shortage, you don’t have weeks to wait for a bank to loan you money. You need the cash right away. One benefit of factoring is that a finance company can get you the money faster and more easily than a conventional bank loan.

With a strong business model and good credit history, you’re likely to qualify for this type of financing. If, for some reason, factoring doesn’t work for you, a trusted finance company will have other solutions available.

You’re ramping up for new business

If your company is in the process of ramping up sales — whether your client base has grown, your product lines have expanded or you’re facing peak season — you don’t have time to wait on a bank to loan you money.

In these scenarios, waiting for funding can mean missing out on key opportunities. If you are ramping up your business, be sure to explore factoring as a financing option.

Improving customer service

More than ever, customer service matters. In a competitive market, if you’re unable to meet the demands of your customer base, they will go elsewhere. Part of serving your customers means being ready to meet their needs.

As factoring delivers money fast, you can ramp up service and supplies, as needed, to keep your customers coming back.

Simple, easy, and affordable solutions

Meridian has partnered with Accord Financial to bring dynamic financing options to our business Members. Our Business Advisors can tell you all about factoring and other customized financing solutions to help your business thrive.

If you’re considering factoring as a financing solution for your business, talk to a Meridian Business Advisor.

Learn more about business financing 

Understanding factoring for business financing

Learn more about business financing options

Learn more about factoring with Accord

Meridian Credit Union communications are intended for informational purposes only and do not constitute financial advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

For permission to republish this content, please contact the Meridian Credit Union Marketing Department at communications@meridiancu.ca. ©️ 2022 Meridian Credit Union