If you’re wondering how do factoring services work, you are not alone. The question of how do factoring services work is one that many people will eventually find themselves asking. Of course, before we can answer the question of how do factoring services work, we must consider a number of other things. In addition to asking how do factoring services work, we must look at why factoring services are so very necessary and who these invoice factoring services are helping in the first place.
Typically, invoice factoring solutions are most beneficial to the small businesses that can be found all throughout the United States. And these small businesses are quite common indeed, with more of them currently in operation than ever before. In fact, there are now more than 28 million various small businesses currently open in this country. This means that small businesses alone actually make up more than 99% of all businesses that are based out of the United States – which is truly staggering by just about any standards.
But struggle is not unheard of in many a small business. After all, small businesses are often more susceptible to various problems than larger businesses are – and even more susceptible than what would be considered medium sized businesses, for that matter. One problem that many a small business faces is that of cash flow. In fact, cash flow is the main reason that businesses of all sizes must ultimately close. When we look at business failures, we find that more than 80% of all failed businesses ultimately had to close because of cash flow problems and other such related issues, according to a study that was conducted by the U.S. Bank.
Cash flow problems can originate from any number of places, but often come about because of unpaid invoices. Unfortunately, invoices that are paid late are all too common, representing more than half of all invoices, around 60% of them to be more exact. For many people and small businesses, unpaid invoices alone can really end up causing problems. It is in these situations that many end up wondering how do factoring services work, especially through their local invoice factoring companies.
The premise of invoice factoring, it turns out, is really quite simple indeed. Invoice factoring services are basically able to convert the vast majority (typically up to 90%) of outstanding invoices into a cash loan, provided that these invoices fall within the last couple of months (though this will vary from loan to loan and from invoice factoring company to invoice factoring company). Then, when the invoice is finally paid, the small business that has taken advantage of the invoice factoring service in question will be able to fully pay off the loan. For many small business, figuring out how do factoring services work has been key for staying afloat in difficult financial periods, something that a great many small companies will be quite easily able to attest to.
Of course, invoice factoring services are still providing you with a loan, and therefore a number of qualifications must be met before invoice factoring services can be granted. For one thing, the small business in question must have a decent credit score, as is quite standard indeed when it comes to getting just about any type of loan. However, this credit score will be a business credit score – and it is important to understand that business credit scores are really quite different from personal credit scores. For instance, personal credit scores range between 300 and 850. On the other hand, a business credit score will actually fall on a scale of one to 100. Understanding this and what it means for your business – and your ability to get an invoice factoring loan – will end up being quite critical indeed, to say the very least.
Having a small business can be a great thing, but there are certainly struggles that come along with it. Fortunately, things like business invoice factoring services can end up being quite lifesaving at the end of the day, able to help you get back up on your feet while waiting for invoice payments.