Business Credit Factoring Finance Loan
Getting accustomed with the Invoice Factoring and how it works can change the path of your small Business. Factoring has been practiced for number of years. For instance the Romans sold promissory notes at a discount, as did the Phoenicians. Generally speaking the word "factor" comes from Latin, the language of Rome. In theory it means "to do" or "to make." It is worth remembering that the Pilgrim's journeys to America were financed by advances from a Factor who provided the funds to pay for the journey.
The Pilgrims on their part repaid the money with earnings from America. Factoring to this day is an extremely common business practices in Europe on the other hand many American business men have never heard of it. Taking this year into account thousands of businesses will Factor billions of dollars in accounts receivable, and they are doing it for profit, growth, and in some cases, their very survival. Factoring can be defined as the selling of your accounts receivable for cash versus waiting 30-60 or 90 days to be paid by your customer.
Q: What Is A Factoring Company
A: Factoring Company can be defined as a commercial finance company that specializes in the purchase of invoices or accounts receivable for cash.
Q: How do I find a Factoring Company
A: In that regard you could "Google" the word "factoring", however you may not know what companies are best for you. In addition you could ask you Banker, chances are he/she has only one company to refer you to OR you can contact a Receivable Broker or an Invoice Line of Credit Broker or a Cash Flow Consultant. A good (opinion) and reputable Broker will not charge you Fees. The Lenders pays the Broker's fees and majority of Lenders want a Broker to work only with their
company. This is ideal if their company can provide what each client needs. Large chunk of Factoring companies do not factor construction or medical invoices. Other Factoring companies need long-term contract. Few Factoring companies can factor up to $10 Million per invoice, a few can factor the large Government Contracts up to $100 Million and still others won't factor anything less then $10,000. Remember one Factoring Company does not fit all Businesses. Clients need an option, unless of course, the choices are few because of the type of Factoring needed. An ideal Broker will provide more then one introduction to a Licensed Financial Institution who meets strict standards for providing Accounts Receivable Funding for Government, State, City, County and Business Invoices. In an ideal scenario a really good Broker will stay with you mentally and emotionally during your entire transaction.
Q: How does factoring differ from bank funding
A: More frequently than not Factoring companies make decisions based on the credit-worthiness of your customers; a bank makes credit decisions based on your company's financial history, cash flow and collateral. Because factoring cannot be termed as a loan, no liability appears on your balance sheet. Most crucially, Factoring companies make funding decisions in days or hours-while banks generally take weeks or even months.
Q: Why would a company sell accounts receivable
A: Fact remained that companies with recurring cash-flow problems often can't afford to wait 30, 60 or even 90 days for invoice payment. They required cash to meet immediate financial demands of their business. Factoring offers this cash by funding the purchase of accounts receivable, frequently within 24 hours after invoices are created.
Q: What is the major benefit of factoring
A: You get immediate cash. In addition perhaps most importantly-Decision to finance your company is based on your customers' credit-worthiness instead of your balance sheet. In case if you can deliver the goods and services you have promised to your customers, and if your customers have good credit, you can factor your invoices no matter how limited or problematic your company's financial history.
Q: What does factoring cost
A: Rates are solely based on individual and specific circumstances. It is worth mentioning in this regard that factoring rates depend on the credit-worthiness of your customers, your average invoice, average payment cycle, factoring volume and other elements. In simple words, they would have you believe that cost of factoring is outweighed by its significant benefits: access to immediate cash, credit analysis of your clients, collection work and accounts-receivable reporting. All in all, factoring cost and fees are Tax Deductible. Every time you spend in factoring can be deducted as a business expense. For this simple reason, factoring can be a good idea.
Getting growth capital has always been a major challenge and stumbling block for companies. Majority of business owners feel that the available options from a bank, basically a business loan or a line of credit, are close to impossible to obtain. Additionally, number of business owners has to go through a loan underwriting cumbersome process that takes weeks only to find out if they qualify. And, more often than not, they dont qualify because banks have tough eligibility criteria and usually demand that the business owner have spotless credit.
Though, if you own a business that is selling services or products to good commercial clients, you have an alternative option. And you wont get it at a bank. The choice is called accounts receivable factoring and it enables you to capitalize on your biggest asset, your invoices from great clients. Factoring offers you with the working capital you need to grow your business and can help you if your biggest challenge is that your customers pay in 30 to 60 days. Besides this factoring also provides you with an advance payment, giving you the necessary funds to meet ongoing expenses such as payroll or rent. It gets rid off the 60 day wait and gets you paid in as little as 2 days.
As opposed to business loans or as a matter of fact lines of credit, accounts receivable factoring is easy to obtain. The biggest need is that you do business with clients that are creditworthy and pay reliably. It can work with startups as well as established companies. Moreover, accounts receivable financing lines have limits that are tied to your sales. This clearly means that as your sales increase, so does your financing.
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