Tag Archives: Spot Factoring

Get your Business Moving without Running into Debt

We all know that small businesses are key to the growth of the US economy.  Success and failure of small businesses create ripple effects which eventually make positive or negative impacts on the broader segments of the marketplace. In recent times, micro businesses are facing plenty of roadblocks on their path of growth due to unfavorable federal policies resulting in lending restrictions. Banks are no longer willing to approve loans to these businesses as they are over-sensitive to credit history and profit margins. Even your business’ convertible assets like invoices are not acceptable to banks. These disapproving banks can’t really impede on your business’ sustainability, as the same invoices can work as collaterals to get you hard cash through spot factoring.  

If you consider the current lending market, the conventional ways of getting loans seem to be over. Banks are not approving loan applications if you’ve been doing business for less than two years, or if your business has bad credit or no credit history. Companies that have experienced bankruptcy have lesser chances to qualify for conventional funding. However, through A/R financing or factoring, you can regulate your business’ cash flow if it is on the verge of drying up. Even start-up businesses with little or no credit history have been denied loans by banks, yet qualified for this service.

A/R factoring works like this — the factoring company buys outstanding invoices after deducting a discount fee (2.5% to 7%) and then advances up to 90% of the balance receivable from the customer. Getting funds through factoring accelerates the revenues that are due from slow paying receivables and gets your business quick working capital. Moreover, this fund will not create debt for your business. Soon after receiving an advance through factoring, you can put the cash immediately to work in the form of working capital. The balance amount will be remitted once the customer makes payment on the invoice.

Your business will get the following benefits from spot factoring:

•     Pay operating expenses.

•     Can grow without incurring debt.

•     Buy new state-of-the art machinery.

•     Take advantage of supplier discounts.

•     Can launch new marketing campaigns.

Now, you have found a method of regulating working capital and ensure constant cash flow that makes your business function seamlessly.

No One to Turn to for Cash? Go for Factoring

Are you looking to broaden the activity-based management to fine tune your business’ resources and operations? Are you unable to get ahead since you are having a cash flow shortage? This is a typical ‘cash strapped’ situation that small businesses often face. An organization’s current cash flow reflects its financial health as well as determines its short-term capability, including paying employees’ salaries, bills for office maintenance and other operational expenses.  If your business is stuck in a similar situation, you can find a way out by using your business’assets. There are factoring companies that provide accounts receivable financingfor small business to bail them out. The assets are your invoices, against which your customers will pay after the given terms like 15, 30, 45 days, etc. are completed. These assets, and can be sold to get quick cash.

The companies that buy the invoices are called factors. A factor will give out an advance of the invoice amount, usually ranging from 40% to 90%, and the amount will be paid immediately after verifying the credit worthiness of the billed customer. For example a factor advances 70% of a credit qualified invoice to a client, when the customer pays the invoice in full for example in 30 days,  the factoring company remits the balance amount of 30% less the 5% discount fee to the client,  Discount fees usually range between 2.5% to 7%. The turnaround time of a factoring firm is pretty quick (4 days if applying for the first time) and 24 hours on subsequent transactions, whereas a bank will take a long time just to evaluate your application. Most importantly, getting cash through factoring is not the same as taking out a loan; rather it’s like selling your assets to a third party that is responsible for funding directly to your business.

Also, while applying for a bank loan, you may get concerned about your credit history. Banks are hardly approving loan applications from small businesses due to stringent government regulations on lending. While buying your invoices, a factoring firm won’t be worried, even if you have a limited or blemished  credit history. They always more interested in  your customer’s credit worthiness.

Billions of dollars are transacted in accounts receivable through the factoring companies every year. Most of the industries such as manufacturing, telecommunication, construction, wholesale business, logistics etc. are financed by various factoring companies. Some organizations utilize account receivable financing to meet their cash flow needs as a stop-gap measure. Other small businesses prefer factoring to banks to avoid the hassles, paper work and delay in processing.

Small businesses that intend to expand their businesses overseas may find financing through factoring more useful than taking a loan from a bank. Professional factoring firms have extensive experience in dealing with the suppliers or purchasers abroad. So, using factor services could ease the rigor of the international business endeavors by removing the obstacles related to cash flow needs.