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Startup companies and SMEs often struggle to hit the ground running due to inconsistent or a lack of cash flow. But where can they turn? Banks won’t give out loans to new businesses without a strong credit history, and spending through overdrafts often comes with very high interest rates.
Invoice factoring for new businesses can secure the right funding to help manage cash flow better, invest smartly and be better protected in day-to-day processes.
Here at Pathfinder, we help provide these benefits with invoice factoring for startups, enabling up to 95% of customer invoices to be paid within 24 hours, and we can scale our services in line with your company.
Startups and Early-Stage Business
Unlocking Financial Flexibility
Invoice factoring is a financial tool that allows new businesses financial flexibility, rather than being stopped in their tracks at the first hurdle. This is a complete game-changer for business owners and managers looking to navigate the turbulent waters of running an early-stage business.
What is Factoring?
Invoice factoring, sometimes called accounts receivable financing, is a financial arrangement where a business sells its outstanding invoices to a third-party finance company, known as a factor, at a discount. In return, the factor provides immediate cash to the business, typically covering a high percentage of the invoice’s face value. The factor then assumes the responsibility of collecting payment from the customers.
Advantages of Invoice Factoring for New Businesses
Improved Cash Flow
Cash flow can make or break a business. Factoring accelerates cash flow by providing immediate access to funds, enabling the new business to pay its bills and invest in growth without waiting for customers to pay.
Grows With Sales
Factoring is a dynamic financial tool that keeps pace with your startup’s sales growth. As your business generates more invoices, factoring provides a flexible and scalable solution, allowing you to quickly convert outstanding receivables into much-needed cash, ensuring your new business can meet its ongoing financial commitments.
Time Savings
Startups can save valuable time and resources on chasing overdue payments. As part of invoice financing, factoring companies take over the administrative burden of collecting payments, allowing owners to focus on what they do best – running their business.
Reduced Credit Risk
Small businesses often face challenges in assessing the creditworthiness of their customers. With non-recourse factoring, the factor can provide credit insurance as part of its overall funding package. This provides a level of bad debt protection against non-payment by your customers.
No Debt Accumulation
Factoring is the sale of assets (invoices). Therefore, invoice finance for startups doesn’t add to the business’s debt burden, making it an attractive financing option for SMEs with limited borrowing capital.
When to Consider Factoring
While factoring offers significant advantages, it may not be suitable for all startups. Invoice factoring for startups is ideal when facing cash flow gaps due to slow-paying clients, but they need immediate working capital. It suits growing companies with reliable receivables, helping them fund operations, payroll or new opportunities without taking on debt. It’s especially useful in industries with long payment terms or seasonal demand.
Cash Flow Constraints Exist
If your business is struggling with consistent cash flow, invoice factoring can provide a timely solution to bridge the gap.
Rapid Growth
As your business starts to take on larger clients, factoring can support the increased working capital needs that come with growth.
Credit Risk is a Concern
If your startup operates in an industry with high credit risk or if you lack the resources for thorough credit assessments, factoring can also mitigate the risk.
Seasonal Fluctuations
For SMEs with seasonal revenue fluctuations, this popular form of invoice finance can ensure a steady cash flow throughout the year.
Financing Services for Startups
Pathfinder’s invoice factoring for startups falls under our invoice finance services, where we take the responsibility of managing payments and disclosing the arrangement with your customers. This is great for startups and growing companies wanting to concentrate on other core areas.
We also provide invoice discounting, which offers the same great benefits of factoring, except that the financial service will not be disclosed to customers. We recommend this for businesses with strong credit management systems, but it also benefits startups looking to build more personal client relationships.
It’s essential for startups to carefully evaluate their specific needs and circumstances before engaging in factoring arrangements. This ensures the solution aligns with their long-term financial goals and strategies. Pathfinder is here to offer impartial, independent funding advice and help your startup get on the right path to success. Get in touch with us to discuss invoice factoring for your new business.
Your business journey starts here. Contact Pathfinder Invoice Finance and set your business on the path to financial freedom.