Financing your Business with Accounts Receivable Factoring
Having to wait up to 60 days for commercial customers to pay
their invoices can be one of the biggest challenges that owners
of small to mid size companies have to face. Waiting to get paid
is not usually an issue for well-established companies that have
a significant cash cushion in the bank. However, it can
seriously affect smaller companies or companies that are going
through a significant growth phase.
Most owners react to this cash flow problem by going to the
bank, hoping to obtain a loan or a line of credit. However,
banks have strict lending guidelines and seldom lend money to
businesses that cannot demonstrate three years of profitable
operations and cannot provide audited financial statements.
Furthermore, most bank financing products tend to have arbitrary
limits, which are based on your existing financial capacity,
rather than your projected growth.
What growing businesses need is a form of financing that is tied
to sales, allowing you to get more working capital, as your
company grows. Furthermore, the solution should work for small
and mid size businesses that may not have established credit
histories, but that have great paying customers. Is there such a
solution?
If you are in a situation where your business is growing and
selling products or services to great credit worthy customers,
you should consider factoring your invoices as
a possible solution. Accounts receivable factoring allows you to
convert your slow paying receivables into cash, by financing
them through an accounts receivable factoring company. Accounts
receivable factoring is a flexible line of financing that is
directly tied to your sales. Basically, the more you sell to
good customers the more financing you can obtain.
The process is fairly simple. Once an accounts receivable factoring agreement has been
established, you send copies of your invoices to the factoring
company, who in turn advances you a significant portion of their
value. A small percentage is usually not advanced and kept as a
reserve to cover disputes/etc. You obtain immediate funding to
pay for company expenses and grow the business, while the
factoring company waits to be paid by your customers. Once they
get paid, they will rebate the funds that were kept in reserve
and charge a small fee for the service.
Accounts receivable factoring is an ideal product
for companies that are growing quickly and cannot afford to wait
30 to 60 days to receive payment from their customers. It
provides you with the necessary financing to operate and grow
your business, and as opposed to bank products; it's easy to
qualify for this service.
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