![]() ![]() They need to pay their employees, vendors, and landlords. That is almost always more time than a business owner has. A bank will take at least several weeks and often months to fund your business. The funding company also takes no equity in the business, letting the owner retain complete control.Īnother distinct advantage of factoring over traditional bank lending is speed to funding. The work has already been done and the business is only waiting to receive payment – it’s not debt. The money paid to the business selling their invoices is secured by those receivables. When it can’t be paid back, assets will be repossessed and if the debt is large enough, the business may be driven to bankruptcy.įactoring doesn’t pose these problems. Debt is risky and carries with it restrictive covenants on how the funds can be spent. Factoring is not debt, it is the sale of receivables, and as such keeps your balance sheet financially stronger. This is another reason why factoring is a great option for smaller advertising businesses. Most businesses would prefer to raise funds without borrowing money. Had they relied on their own cash flow while facing notoriously long industry payment terms, they would’ve come dangerously close to running out of cash. They maintained the cash flow needed to pay employees and vendors on time without raising additional equity. ![]() The agency partnered with Harper to use invoice factoring to fund operations while experiencing 3x revenue growth. The chart below highlights the cash balance of an actual Harper client – a growing advertising agency with 75 day average payment terms. And, when the time comes to raise the next venture capital round, it’s always better to walk into the meeting not desperately needing cash – the ability to walk away is a powerful n egotiation tactic! The higher it can grow revenue, the bigger the valuation the startup receives in the next investment round. The longer a venture-backed company can extend its runway, the higher it can grow its revenue. These startups immediately convert invoices to cash and use this capital to fund operations and growth. For venture-backed companies, factoring increases their cash runway, delaying when the next funding is needed and giving them time to grow into a higher valuation. By selling slow paid invoices, a company raises capital without selling additional equity, which reduces dilution for the founders. Invoices are assets you can use to fund your startup’s growth.įactoring invoices is particularly advantageous for advertising startups for several reasons. ![]() This is an excellent way for a small business to fund growth and operations without interruption. Factoring is the selling of invoices to a factoring company (like Harper Partners) in exchange for immediate cash. So how do early stage advertising companies grow with built-in working capital issues and no bank financing options? Simple – these startups turn to invoice factoring. It’s a symptom of digital advertising’s relative newness as an industry, the seeming complexity of the ecosystem to outsiders, and the lack of physical collateral. Additionally, A/R collateral in the digital advertising space is not well understood by banks and many other lenders. ![]() Often, these companies work with vendors who expect payment within 30 days of completed work. This problem is compounded for advertising startups (agencies, publishers, and adtech companies) where standard brand payment terms are frequently 90+ days. Because of this, a startup often has limited options when cash flow issues emerge. They want proof that the business model is viable and require borrowers to be in business for a certain number of years before being eligible for a loan. Banks hesitate to lend money to businesses that don’t have income or assets that meet their strict underwriting criteria. Startups and small businesses, especially those with limited operating history or profitability, often find it difficult to secure bank loans. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |