Selecting the right funding options for your staffing firm can pose a challenge. Weighing the pros and cons can get complicated, especially in murky economic times like we face now. As you consider alternatives like invoice factoring and advance loans, you need to determine which one makes a better choice for your recruiting business.
After all, funding is the lifeblood of any business. A lack of proper financing is a leading cause of small business failure. As a staffing firm, you need diverse financing options to respond to emergencies and gather resources for expansion.
Invoice factoring and advance loans both represent good choices in certain situations. But which one is best for your staffing firm? Here are some items to consider as you look to answer that question:
Should you pursue invoice factoring or an advance loan?
Information is the key to determining the right funding option for you. By understanding your alternatives, you can select the path that best suits your needs.
What is invoice factoring?
Invoice factoring involves getting paid for your outstanding invoices. Rather than wait for your customers to remit to you directly, a funding company provides you with the cash you are due. They receive a fee for the service, but you are able to get your money sooner than you otherwise would.
What is an advance loan?
Think of this as the corporate equivalent of a payday loan. If you face a near-term cash shortfall, you can get an injection of funds through an advance loan. Like any loan, it comes with an interest rate and a repayment plan. Typically, this type of debt requires smaller regular payments (sometimes daily) until the principle and interest are paid.
How do you make your decision?
Whether to opt for invoice factoring or an advance loan will depend on your circumstances. You have to look at your long-term goals, especially as it applies to debt and cash-flow management. At the same time, you need to consider the specific situation.
Here are a few specific factors to weigh as you choose between invoice factoring and an advance loan:
Today Versus Tomorrow
Invoice factoring involves getting paid for sales you’ve already made. As a result, the process fundamentally cashes in on today’s revenue — these are funds you’re already owed but haven’t collected yet.
Advance loans (as the name implies) taps into the future. You are borrowing against revenues you haven’t booked yet. As a result, these funding options don’t just have different structures. They also have a different risk relationship with your operations.
Judging the Cost of Funding
You need to pay a fee for invoice factoring. Given this cost, your expected revenues get reduced. However, the expenses here often come in below the interest costs associated with advance loans.
Protecting Your Balance Sheet
The structure of these financing options is different. An advance loan is just that — a loan. However, invoice factoring falls under a different category. If you are worried about limiting your debt load, invoice factoring can protect that part of your balance sheet.
Ready for Funding Options?
Looking for the best funding options for your staffing firm? Frontline Funding can give you the information and support you need.
Contact Frontline Funding today to learn more.