Factoring to Improve Business Cash Flow?

Factoring to Improve Business Cash Flow! 

By Marcia Gershenbaum-Bunday www.factoryourreceivables.com

"Factoring is a financial tool that allows businesses to get paid on their invoices in as little as 24 hours instead of waiting 30-90 days for their money.  It is a process where a business sells their credit worthy invoices to a factor at a discount.  They are paid right away and the factor waits the 30-90 days.  It usually involves three entities the factor who buys the invoice, the client who sells his invoice to the factor, and the client's customer who pays the invoice."

In this current economic climate of two-digit unemployment many people are considering starting their own business.  They reason how else they can be assured that they will continue to be employed and have an income they can count on unless they count on themselves to provide it.  In many cases thinking of a way to make money is not the problem, but the old adage that "it takes money to make money" is what holds a budding entrepreneur back. 

In the past, it was often possible for a new business owner to get a business loan at the bank. Now either their credit has taken a nose-dive or banks just aren't as willing to loan money on an unknown quantity or business even with a great business plan.  You may already know there is a market for your products and have customers who are willing to purchase from you, but you are either too new or have some credit problems which prohibit being approved for a loan.  Factoring receivables or invoice financing can often be an answer to your problem!

Another scenario which could apply is you have been in business for a while, but when the economy tanked a few years ago your ability to pay your obligations was inhibited.   Your customers may also have had some financial problems as well and are now taking 30, 50, 60 days or even longer to pay their invoices.  Although having slow paying customers is expected in today's business environment, they make managing your cash flow a very difficult task. Paying suppliers, salaries and rent becomes a challenge.  However, there is a way to solve this problem. The solution involves factoring your invoices.

Factoring will provide your company with the necessary capital to operate the business, pay suppliers and grow. However, factoring is not a business loan. Rather, factoring involves selling your invoices at a discount for immediate cash. The factoring company waits to get paid, while you get immediate use of the funds.  Invoice factoring or financing can easily be integrated to any business and works as follows:

• You deliver goods or services and invoice for them
• You sell the invoice to the factor. They give you the first installment of 70% to 90% of your invoice. This is called the advance.
• You get immediate funds to run your business
• Once the customer pays the factoring company, you get the second installment (of 10% to 30%) and are charged a small fee for the transaction. This is called the rebate

Although factoring costs vary and are based on transaction size and the time it takes for the invoice to pay, the average cost of a transaction is usually between 1.5% to 3% of the invoice per month.  Factoring is definitely easier to obtain than a business loan and can usually be set up in 1 week or less.  The most important requirement is that you work with credit worthy businesses and have no liens against your receivables.  If you are interested, please contact me at www.factoryourreceivables.com.