As a small business, it is critically important that you have the necessary access to capital to work on a contract. Your customer will be aware if the inability to finish the work is related to a lack of funding.

This is why it is a smart idea to put together a business financing strategy before you close a sale on a new contract.

Related story: How Invoice Factoring Works and Why Business Owners Should Care

Of course small contracting firms experience a little bit of a catch-22 when they think about going to the bank for a loan. They cannot show historical revenue that matches the great expectations around the corner.

Here is where invoice factoring can me a tremendous tool to get from point A up to point C,D and E. There are three main benefits to consider about factoring receivables;

1. Credit

The decision to fund a borrower is based on the creditworthiness of their customers (in this case a government agency or large Prime contractor.) They are the ones writing the check that pays off the advance and closes out each transaction. So the borrowers Financial Statements (or lack of any) is not an impediment to getting access to working capital.

2. Speed

With a minimal amount of paperwork, a factoring account can be set up usually in a week to 10 days. Once the factoring agreement is in place you can wait for the contract to start and have the ability to make payroll.

3. Availability

Unlike qualifying for a line of credit from a bank, a factoring relationship does not have a top end. You do not have to come back and re-qualify for a larger line. The factoring relationship grows as your company’s revenues grow.

Often misunderstood and more commonly unheard of, invoice factoring can be just the mechanism you need to build a company with additional employees. At the end of the day, after using factoring for a while, you will be able to transition to an more traditional business loan that will mark the ongoing success of your company.

About the author
Gary Honig has been active with the factoring industry since the early 1990’s where he began as a business development officer for the existing Creative Capital Associates. In March 1997 he spearheaded a takeover of the company and reformed it as a Maryland corporation.

Honig has been at the helm since and oversees all aspects of running CCA which still provides commercial invoice factoring nationwide. He is a participating member of the International Factoring Association (IFA) which is the long standing factoring industry association. He is routinely called upon as an expert with thorough knowledge of the receivables factoring industry.
He can be reached at [email protected] and on Twitter @garyhonig.

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