At the root of many successful businesses is an effective cash
flow structure that is able to manage accounts receivable and
lending against receivables. Cash flow management is vital to
the profitability of a business, because commercial enterprises
must also pay bills, just like everybody else.
A factoring service is designed to simplify accounts receivable
management, by making it possible for the business to get a loan
against receivables, based on the credit rating of the person who
owes the money to the business. This type of service is an
option for any business that has been having trouble collecting
on unpaid invoices. Factoring companies are used in many
industries and for businesses of all sizes, because they can
assist in creating an efficient financial processing framework.
Factoring companies are responsible for helping a business
convert accounts receivable into cash. A factoring company,
sometimes referred to as accounts receivable financing, will help
any business manage their financial resources more effectively
and efficiently. The goal is for the business to enhance its
collections during day-to-day business operations and convert its
existing receivable assets into immediate cash flow. These newly
available funds can then pay the necessary bills that are
generated from running of a business.
It's important to first understand how accounts receivable
funding is different from a standard loan obtained from a bank.
Accounts receivable funding, or factoring loans, is not a loan in
the common sense, but instead a transfer of assets (receivables
in this case) to a third-party. While banks can take months to
approve a regular commercial loan, an advance on receivables from
the correct agency can help a business convert its own resources
to cash within days and provide money for day-to-day operations.
The factoring service merely provides the money already owed to
the business, in advance of receiving payment from the business'
customers. Businesses that take advantage of this kind of service
do not have to wade through a bank's red tape in order to
receive the cash it needs to keep its bills paid on time.
By working with a receivable finance agency, a business can gain
access to a new pool of cash. This is an important part of
improving a business' cash flow, and it will help tighten up
accounts receivable and invoice management as well.
The process of factoring receivables, with today's leading
receivable finance companies, is relatively simple and
straightforward. First, a copy of the invoices that is sent to
customers is delivered to the factoring service company. Various
factoring companies extend different percentages for the value of
the invoice, anywhere from 70-90%. The end-customer pays the
factoring service the amount of the invoice, instead of paying
the business directly. After the customer has paid his or her
bill, the factoring company then pays the billing company the
remaining balance, minus a discount fee. The process is very
similar to accepting credit cards from customers, and it can
significantly help put income into the company's bank accounts
immediately.
There are many benefits to working with a factoring service.
Some business managers make the mistake of thinking that
factoring will be too costly, but the truth is that the benefits
far outweigh the costs involved. Improving the cash flow of a
business can lead to considerable savings over time -- this can
include savings on the cost of credit investigations and any cash
discounts on purchases. This cash-on-hand can also help the
business to stay on solid footing with its own creditors.
Finding the right factoring company can take some time; so
reviewing your options is an important first step. Financial
services are readily available in the areas of receivable
finance, asset-based finance, and purchase order finance. The
most common types of businesses that can benefit from funding
through a factor company, includes start-up businesses, seasonal
businesses, and rapid-growth businesses. Some businesses that
have insufficient collateral, are in acquisition situations, or
have inadequate cash flow will also benefit from a factoring
service.
The factor company can help to manage and collect accounts and
ensure that you are paid immediately for all invoices received.
Copies of the invoices are all the business needs to get started
in a factoring agreement, and it can take as few as between 3-5
days to set up an account. Initial funding can take between 3-10
days after signing the agreement. In most cases, almost 100% of
a company's accounts can be funded, depending on the industry,
credit quality of the buyers, and invoice processing procedures.
A factoring service can greatly assist in the success of a
business, by providing the necessary cash on hand to run the
business.
Toby Seibert: writes about commercial finance. 1st Commercial
Credit can help you with your business growing pains, with
financing rates as low as 1.59%, with no fees and no minimums.
They finance invoices from $5,000 to up to $10 million with
flexible approval decisions. Call 1-800-450-9653 or visit
their website: http://www.1stcommercialcredit.com
