Receivables Factoring – A Financial Solution for Small Enterprises
Companies that specialize in the field of receivables factoring are there to help small companies solve cash flow problems. When a business is in need of funding quickly and doesn’t desire to go through traditional financing sources, the process of selling outstanding invoices is an attractive alternative. Business factoring is the perfect solution for companies that want to avoid the hassle of collections or are transitioning their business toward conventional financing, but haven’t arrived yet.
Cash Flow Help
Debtor factoring has proven to be an affordable and convenient remedy for many organizations that desire to accelerate cash flow. One of the primary benefits is that it doesn’t require borrowing from a bank or putting up company assets and collateral. Receivables factoring is an efficient and straightforward way to acquire funds to cover financial obligations that most businesses face, and also provides alleviation from slower paying customers.
Cost of Factoring
When using an invoice factoring solution, the business owner is charged a small discount. In return, they receive an immediate cash advance based on the value of the invoices, payment schedule and credit worthiness of the customer base. Any reserves are paid after the invoice is collected from the factor. This allows business owners to meet payroll commitments and order supplies without concern or pressure. Factoring companies work closely with businesses to help them succeed through a variety of money management strategies.
An invoice factoring business works with numerous industries. Companies that gain the most benefit generally have commonalities such as rapid expansion and limited borrowing opportunities. Some companies are not well enough established for bank funding eligibility, especially when first starting out. The factor is not concerned with a client’s balance sheet; their main focus is on the customer database of the business seeking revenue. A larger company may use factoring as a way of acquiring another business or to avoid a bankruptcy situation.
Reasons to Consider Factoring
Apart from the obvious benefit of having additional working capital on hand, there are a number of advantages to using an invoice factoring service. A business can build up their inventory, reduce their amount of bad debt, increase marketing programs, manage seasonal cash fluctuations, secure big orders and prevent fixed assets from becoming burdened. Also, because factoring isn’t a loan, it allows companies to retain their ownership position and equity. Any increased sales demands can be easily met when a business has a factoring line of credit in place.