A business venture can experience cash shortage or difficulty in being
liquid even if it has receivables and steady assets that are more than
its payables and other liabilities.
There are easy solutions to cash shortage just so a business enterprise
can meet its short term obligations like payroll. Among these solutions
include loans or short-term borrowing and factoring accounts. Factoring
accounts can be done for accounts that are expected to be received by
a company during a certain period.
A person who wants to avail of credit through the factoring of his accounts
receivable must submit an application form which will then be reviewed
by the agency concerned. Once approved, the applicant should consider
the terms of the loan proposal and wait for a maximum of seven days within
which the agency will con duct a credit investigation. The investigation
will cover the applicant's credit status, tax payments and liens as well as
any pending criminal case.
After which, the applicant must submit the original invoices of services
rendered or good s delivered. Once the invoices are verified, a fund amounting
to about eight percent of the total invoice will be approved and advanced
to the applicant. The balance will be held until the invoices are fully
paid.
Payments for services rendered and goods delivered will be sent directly
to the credit agency which will in turn release the balance of the total
invoice less the appropriate payments for their services.
Getting short term financing through factoring of the accounts receivable
of a business enterprise can be easily availed of even through the internet.
There are credit agencies that have made the process easier by making
forms available online. By filling up the form online the applicant can
have his accounts receivable assessed before he speaks to a credit representative.
Companies selling services ad well as distributors selling products are
eligible for the factoring of their accounts receivable provided the services
have already been rendered and the goods already delivered.
This method of accessing easy funding is commonly used by trucking companies
who have thousands of accounts receivables in the form of freight bills.
However, these companies have to pay their truckers as well as pay business
overheads so they cannot wait for a month or more for these bills to be
liquidated.
Factoring is an easier way to get additional funding for business compared
to the traditional financing methods which require lots of paperwork and
long waiting periods. With a meager amount deducted by credit agencies
from the invoices, usually one to six percent, small business can already
add to their cash flow and can run their businesses efficiently.
