Kristin Gabriel is a writer who works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial services such as invoice factoring to clients in more than 30 industries. IFG offers expertise in accounting, finance, law, marketing and banking. Ho to www.ifgnetwork.com to learn more about factoring.
As we have all seen since the beginning of the year 2009, when it comes to lending money to small businesses and startup companies, most sources including banks, venture capitalists, angels, and private lenders have all but disappeared. And it looks like finding money will be difficult for entrepreneurs throughout the entire year.
However, there is one solution for any business to get money when they need it. Invoice factoring can be effective during tough economic times like these. It is fast, flexible, and cost effective and works as an alternative to traditional financing.
For centuries standard accounts receivable factoring has helped companies get through bad economic times. An innovative cash flow solution, it allows companies to get short-term working capital for growing their businesses, and in some cases, stay in business.
The latest trend is called single invoice factoring, or spot factoring, and all you have to do is sell one invoice at a time. You will receive the funds in less than 48 hours, so that you can stay in business and keep on manufacturing, and make the next sale.
Spot factoring companies typically look at the creditworthiness of the client's customers. They can often fund within as little as 24 hours, and they do not expect to buy 100 percent of a company's receivables, so there are no minimum or maximum sales volume requirements.
Today's economy has caused strife for many small businesses that do not get paid immediately for delivered products or services, and sometimes they do not get paid for 30, 60 or 90 days. And in most cases, it may be difficult for them to attract conventional funding. Companies with products or services do not need to wait 90 days for their clients to pay them. Instead, they can establish a relationship with a factoring company who understands their local environment, and will purchase select invoices at a discount. It is a fast, easy, and affordable way to turn receivables into cash. Not part of a portfolio lending approach, each invoice purchase is a separate transaction that is modeled as a buy-sell transaction.
The way invoice factoring works is that a company specializing in small business factoring will first undertake a due diligence that often takes a couple of business days. Once this step has been completed the client is at liberty to offer invoices for purchase. Factoring companies typically advance up to 90 percent against invoices. After they have looked at the creditworthiness of the client's customers, funding can be provided within as little as 24 hours.
Upon receipt of the invoices, the factoring company will check the credit of each debtor named on the invoices provided. They make sure that the sale represented has been satisfactorily completed. Once this is done the debtor is notified of the purchase of the invoice by the spot factoring company, and the client receives their funding.
Many of these factoring companies do not expect to buy 100 percent of a company's receivables, so there are no minimum or maximum sales volume requirements. Most of the factoring companies have competitive rates.
Each and every client's circumstances will vary and so this may have impact fees. At the end of the credit period the debtor will then pay the spot factoring company directly, completing the transaction.
Most factoring services today are user friendly, flexible, cost effective, and besr of all, fast. The total transaction time is often reduced to just two to eight hours if a client chooses to offer further invoices to the invoice factoring company.
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