For business owners, maintaining a steady cash flow is a challenge. Hence, finding viable sources of short-term financing is a must. Sometimes you may find the need for extra cash at the most unexpected moments. Acquiring a bank business loan takes time so you need to be more creative.
Fortunately, there are many options available for business owners. One example is known as account receivables factoring or cash advance factoring. On this post, let us talk about how factoring is done and how you can benefit from this form of financing.
How Does Factoring Work?
When confronted with expenses and there is no sufficient cash in hand, a business owner can sell its accounts receivables to a factoring company. Do you have accounts receivables? These are sales youve made but are on waiting until payments are collected from your customers. Most business owners give their customers 30 days to 60 days to submit their payment. Waiting for 1 month or two is a long time especially when you have a limited budget.
Hence, instead of waiting for your customers complete payment, you can sell your receivables to a factoring company to get immediate cash advance. Afterwards, the factoring company takes over the collection of payment from your customers. Through this arrangement, idle time is avoided and funds can be used productively.
A factoring lender may provide up to 80% cash advance from the total amount of invoices submitted. Other factoring lenders may even offer up to 95%. When your customers send in their complete payment, the remaining amount from your invoices can be obtained. Clearly, accounts receivables factoring is an effective way to enhance business cash flow without the need to apply for a business loan.
How Factoring Benefits Your Small Business
This form of
business financing is utilized by many businesses- both big and small. In fact, even larger companies do turn to factoring lenders from time to time. Whether you accept cash payment or credit card payment from your customers, you can sell your accounts receivables in exchange for funds. Nevertheless, you should choose to submit receivables only from your reliable customers to avoid the risk of payment default.
You can use the fund obtained through accounts receivables factoring for various purposes such as to purchase materials or to accommodate a large bulk of orders; to hire or train more workers; to repair a broken machine; and other expenses.
What Lenders are Looking For:
Factoring companies are looking for quality accounts receivables, which means customers will be able to pay on time. The stability of your business will also be taken into consideration. Some factoring companies only offer financing to established businesses but may find lenders who are willing to provide cash advance for start-up or new businesses.
Your businesss marketing performance will of course be evaluated. Some factoring lenders have a minimum required monthly sales quota which means you must be able to reach the minimum amount of sales on a regular basis in order to qualify.
Lai Castillo is an
equipment leasing broker that specializes in getting start up equipment leasing and providing articles in finding solutions for Leasefunders.com. For
equipment lease application visit leasefunders.com.
