Business Finance Solutions

Mark Hoffer asked:

Accounts receivable factoring is an option that has recently become much more attractive to a variety of businesses. Because it has become much more difficult then ever to qualify for a bank loan, companies are being forced to search out alternative financing methods, sometimes to stay afloat. Invoice (receivables) factoring is much easier then bank financing and happens much more quickly. In the majority of cases, most transactions can be completed within 7 days, some in as little as 24 hours.

Accounts receivable factoring is a great way to improve cash flow. Companies that are low on capital can use their receivables accounts to earn money. Instead of waiting for their clients to pay their invoices, they can sell them to a factoring company for immediate cash. Factors buy account receivable and purchase order accounts. They do so at a discount, typically for 10% to 30% less then their full value. This money is given to the company right away and can be used for whatever the business needs. This might include paying personnel, rent, supplies, etc.

There are several advantages to this particular cash flow solution. It doesn’t require any type of debt. It is an option that allows businesses to get money extremely fast and is not dependent upon the credit history of the company or how long they have been in business. It can be incredibly difficult, in fact, nearly impossible for a business to qualify for a bank loan if they have poor credit and are not already established. Today, it is much harder then in the past to qualify for a loan even those businesses that do have good credit and have been around for some time. It is simply indicative of the times. Companies that choose to participate in accounts receivable factoring won’t have to worry about either.

What is important to a Factor is the credit history of a business’ clients. Their clients must have very good credit because this increases the likelihood that they will be repaid.

A business that finds that they have a cash flow problem may want to consider accounts receivable factoring. The process is a very simple one. A business will sell their outstanding invoices to a Factor who will typically purchase them for between 70% and 90% of their full value. The Factor will then collect the invoices. All of the money that they collect will be given back to the original owner of the invoice, minus the Factor’s fees and the money they initially purchased the invoices for. This allows the business in trouble to generate capital fast and allows the Factor to earn money, via fees, for coming to the rescue. Both parties benefit a great deal and the company with the cash flow problem is able to raise money without debt or a bank loan. This makes for an excellent small business financing solution.

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