The “Rights” and the “Wrongs” of using Invoice Factoring

We have long championed invoice factoring as a way for businesses to grow without taking on additional debt. Invoice factoring, like borrowing, infuses cash quickly into a business, without creating debt. With invoice factoring, you get a cash advance on your invoices, so you don’t have to wait for your customer to pay to receive the bulk of your accounts receivable’s value. Loans, in contrast, require you to pay monthly interest and at some point, often when least convenient, repay the principal amount itself. Furthermore, unlike loans, invoice financing is off-balance-sheet, which keeps your leverage ratios low and boosts your return on capital. No wonder many savvy business owners turn to invoice factoring to generate funds.

Your Weapon of Choice

Invoice factoring is clearly a powerful tool helping you   to keep your business thriving and growing. However, like any tool, it pays to use factoring for the right purposes so that you extract maximum benefit from it.
What’s that mean?
It’s simply this: Invoice factoring is meant to grow your company. Plainly put, that means investing your cash infusion into the chain of production so that you can expand your revenues and profits. If you are a manufacturer, the money you raise from invoice factoring is wisely spent on increasing the quantity and/or quality of raw materials and assemblies used to create finished products. If you’re a merchandiser, it makes sense to spend the cash on additional product orders and perhaps expanding the types and quality of the products you sell.
That raises the question: What ways should my business not spend the money raised by factoring my invoices? The answer is to use a combination of invoice factoring and borrowing in such a way as to maximize the benefits to your company.

The Wrong and The Right Approach

An example will clarify:
A widget maker, let’s call him Jim, comes to us to learn about invoice factoring, and after careful consideration, agrees to factor his accounts receivable at 80 percent of value. This means Jim collects 80 percent of his A/R balance immediately, and the remaining 20 percent, minus a small fee, when we collect it from Jim’s customers. Jim is excited by the prospects of expansion, but realizes that he’ll need additional trucks to deliver his additional widget output. So, unbeknownst to us, Jim diverts $200,000 of the proceeds to buy a new fleet of trucks.
We wish he’d have told us first. That $200,000 could have gone into purchasing the additional raw materials needed to ramp up widget production. Now he has a shiny new truck fleet but no increase in output. The better solution would be to arrange an equipment loan from Alpha Capital to pay for the new trucks. Because equipment loans are collateralized, they are available at reduced interest rates, and Alpha Capital is happy to extend equipment loans to our factoring customers.
Taking this route means you don’t have to use up company funds or submit to complex leasing arrangements.
By combining invoice factoring with an equipment loan, Jim could have increased both widget production and widget delivery capacity.

It’s All About You

Now, your name might not be Jim, and you don’t make widgets, but if your business is looking to expand, you may be in a similar situation. We urge you to consider Alpha Capital invoice financing to provide the cash you need to grow your company, and we can follow up with an equipment or inventory loan to ensure your extra production gets to market.
You’ll like dealing with Alpha Capital. We approve on average 92 percent of applications received. Furthermore, our one-page application form is easy and fast. For invoice financing of $250,000 to $5 million, contact Alpha Capital today and get the money you need to expand your business.