More Soluble Debt-free Line Of Credit

It is imperative for a new or expanding company to be able to finance new orders. When a small company is unable to qualify for a conventional line of credit, an alternative debt-free way of financing helps to fill the gap created by a lack of alignment between the accounts receivable and accounts payable cycle.

Effective management of cash flow is essential for a company to be able to eventually qualify for less expensive financing from conventional sources. Alternative sources should be considered temporary and transitional.

One way several Fortune-500 companies have used as an alternative is to factor invoices. Factoring involves a third party that advances a percentage of the face amount of an invoice followed by the balance minus a small discount fee. The amount of money advanced on an invoice is determined by the type and risk of a particular industry. The discount is determined by the amount of risk in that type of business.

Factoring companies usually specialize in the type of industry any particular factor will finance. For example, there are some who will factor only medical. Others specialize in construction. Yet, other companies finance about any type of business to business or business to government invoices. The percentage of advance is between seventy and ninety percent.

It is important for a factoring company to know about liens, partial payments, subcontractors, tier subcontractors and other variables subsequent to the construction industry in order to be able to factor construction. Typically, construction advances are only seventy to seventy-five percent. The reserve is higher to protect the factoring company.

Medical factoring requires an audit to determine the actual percentage of collectible accounts. However, once that percentage has been determined, perhaps a larger percentage can be advanced on that amount.

Accepting credit cards for payment is a way of using factoring principles. When a company accepts credit cards, the credit card companies pay almost immediately after submission of an invoice minus a discount fee. The two installments a company receives from factoring are called an advance and a reserve. When the reserve is paid, the discount is deducted.

A debt-free line of credit is a way of describing the way invoice factoring works. It is debt-free because it is actually the sale of an asset. Thus, it is entered on the balance sheet as cash rather than as an account receivable. It is a way for a company to be more soluble.

Not all of the company invoices have to be submitted for factoring. The company can decide whether or not to factor any particular invoice. However, the discount fee is in part determined by how much volume the company does in factoring.

One of the benefits of factoring is the amount available to finance a company grows automatically as the company grows. When there are more invoices and a higher dollar volume, there is more money available to finance the company. Thus, once the company is approved for factoring, there is no need to apply for an increase in the line of credit.

Leasing equipment is another way of showing on the balance sheet that a company is soluble. There are two types of business leasing. One is to buy and own the equipment upon termination of the lease. However, to keep the monthly cost down and position the company with more up to date equipment and technology, there is a type of lease wherein the equipment is returned. The monthly costs are usually lower on the second type of lease.

When a person or company has sold a business and is taking payments on a note, it is possible to sell the business note if the buyer of the business has made timely payments for at least a year. It is an option to generate money and become more soluble.


It is imperative for a business to have a positive cash flow. When there is a a negative cash flow, the company needs to find some way of financing the company. The main reason most companies go out of business is because of a lack of capital.

If you have a company with potential, is growing but suffering from a lack of capital, you should consider factoring invoices. It is important to find a credible broker who can match the type of business you have with a factoring company that specializes in factoring that type of business.

The application process is uncomplicated and the process easy and quick. A factoring company needs a copy of each type of invoice, aging accounts receivable and accounts payable. A factoring company can process and return results within a couple of business days with a proposal if the company has been accepted. One of the most important determinations is whether your clients have good credit.

After acceptance and submission of the required paper, a company can expect to be funded within ten business days. All of the eligible outstanding accounts can be funded on the initial funding. New invoices are paid almost immediately after being submitted. A company should have funds within twenty-four to thirty-six hours.

A healthy business is a company with positive cash flow.