Receivables Factoring Relieves Cash-Flow Problems
Odds are if you have a small business, you'll experience cash-flow problems at some point in the life of your business. Many corporations face deficits in the startup phase, while others do not have the money they require to grow their businesses. There are several things you can do to enhance your cash flow, such as focusing on collections efforts or getting pro assistance with budgeting and forecasting. But when these alternatives aren't enough, factoring can help.
Any cash-strapped company will find factoring a fast and easy solution by simply exchanging accounts receivables and invoices for instant cash. There's a price that goes with it, however. A factoring company, just like a bank or a commercial financing company, collects a fee for its services.
First the factor will wish to inspect your invoices and assess the creditworthiness of your customers. These are some things you should be ready to show the factor:
- A financial statement - current;
- An aging report for accounts receivable;
- A certificate of incorporation or partnership agreement;
- Proof of insurance, invoices and other business documents.
Any cash-strapped company will find factoring a fast and easy solution by simply exchanging accounts receivables and invoices for instant cash. There's a price that goes with it, however. A factoring company, just like a bank or a commercial financing company, collects a fee for its services.
First the factor will wish to inspect your invoices and assess the creditworthiness of your customers. These are some things you should be ready to show the factor:
- A financial statement - current;
- An aging report for accounts receivable;
- A certificate of incorporation or partnership agreement;
- Proof of insurance, invoices and other business documents.
A factor will need to make sure that your clients will pay their invoices on time because the responsibility of picking up them will become the factor's. When you know which invoices the factor will buy the factor will often pay.
Once you establish which invoices the factor will purchase, they will sometimes pay you an advance; as an instance, the factor might pay you 80 percent of the full amount of your invoices and then reimburse you the other 20 percent when your clients pay their invoices. They can naturally take away the fee.
You'll pay anywhere from three percent to 7 percent or more of the total the factor collects. Your invoices' amount, number of days in the collection cycle, and creditworthiness of your customers determine the fees the factor collects.
Factoring could be a realistic solution, especially if you require cash in a hurry. You can receive payment in a week or less once your application and invoices are accepted and examined.
Normally, factors like to work with firms that have invoices upwards of $10,000.
Once you establish which invoices the factor will purchase, they will sometimes pay you an advance; as an instance, the factor might pay you 80 percent of the full amount of your invoices and then reimburse you the other 20 percent when your clients pay their invoices. They can naturally take away the fee.
You'll pay anywhere from three percent to 7 percent or more of the total the factor collects. Your invoices' amount, number of days in the collection cycle, and creditworthiness of your customers determine the fees the factor collects.
Factoring could be a realistic solution, especially if you require cash in a hurry. You can receive payment in a week or less once your application and invoices are accepted and examined.
Normally, factors like to work with firms that have invoices upwards of $10,000.