If your business carries a substantial amount of accounts receivables then it may be in your best interest to use a factoring firm rather than seeking the assistance of an angel investor. This is almost wholly due to the fact that you will be able to generate a much better rate of interest by selling your invoices to a third party versus having to sell a percentage of your business to a third party funding source.However, it should be noted that only certain businesses are a good candidate for accounts receivable or factoring financing. You must make sure that your business is able to accommodate the extensive amount of expensive that is involved with selling your invoices to a third party.

 

Additionally, you need to make sure that the factoring firm has a limited ability to contact your clients directly. Many people that have used factoring financing have found that these firms will often bully clients into paying their invoices immediately. As such, you are going to need to review all of the terms and agreements that come when you sell invoices with the intent to receive your revenues immediately. This could substantially tarnish you image as a strong provider of services to your underlying customer base. This is one of the main reasons why many firms decide not to use accounts receivable financing on an ongoing basis.

 

Conversely, if you work with angel investors you will not face the same problems that arise as it pertains to your accounts receivables issues. These individual investors, however, may seek to use your outstanding invoices as a way of protecting their investment. As such, you need to be very careful when you decide to use angel investor financing rather than working with an angel investors. In many of our future discussions, we are going to continue to point out the benefits and drawbacks of working with this type of investor. However, angel investors have many tremendous upsides beyond being able to provide you with the capital that you need in order to finance the day to day operations of your business.

 

In closing, you may find that working with a factoring firm will work to your best benefit over the long run although the underlying cost of this financing is somewhat high. We, as always, recommend that you work with your certified public accountant in order to determine which type of financing is most appropriate for your business on an ongoing basis. These professionals will ensure that you are able to understand every aspect of different financing methods for your small business.

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