Cash Flow Loans

Written by Patricia Tunstall
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When cash flow becomes erratic--or non-existent--immediate steps must be taken to rectify the situation. Most important, the cause or causes must be revealed and corrected. More than likely, an overabundance of accounts receivable will be one of the culprits, and then a relatively simple, debt-free financial resource--factoring--may be considered.

Reasons for Factoring

Factoring lets you solve your cash flow problems at once. Your accounts receivable go from being a burden to being your credit line. By selling these invoices, you have cash on demand. When your cash flow becomes uneven, use your receivables to shore up your cash reserves. Needless to say, factoring is not a permanent solution, and it is not intended to be used instead of solid business practices.

Unlike conventional banking, factoring creates no new debt and requires no collateral. Actually, your accounts receivable act as your collateral, but not in the sense that you must put up collateral for a loan. With some factoring companies, there is no minimum or maximum monthly activity; spot factoring of one invoice at a time is possible.

There is no loss of equity with factoring, as there is in setting up a limited partnership, for example. Should cash flow problems become fatal, some factoring companies will work with a company in bankruptcy. This must be done with the permission of the Bankruptcy Court, but it is likely permission would be given because few financial entities work with bankrupt businesses.


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