Factoring

Written by James McNee
Bookmark and Share

Growing businesses with cash flow problems should consider factoring as a financial solution. This service works well for businesses with steady, reliable customers. It can provide cash for a short period of time until invoices are paid. New businesses often choose this solution until they have time to build up cash reserves.

How Factoring Works

Companies must extend credit terms to their customers. It sometimes takes 30, 60, or 90 days to be paid for services or merchandise delivered. As sales grow, accessible cash often becomes a problem. Lenders will evaluate invoices and issue a short term advance for 70 to 90 percent of the total due. The money is deposited directly into a company's bank account for immediate use. When the invoices are paid by the customers, the lender collects the amount advanced plus a fee.

Factoring allows businesses to grow more rapidly. They can pursue large sales and still have cash available for payroll and other necessities. This flexibility is beneficial to long-term planning and allows for customized terms that fit individual needs. Personalized service is an important consideration when choosing a lender.

Factoring may be started and stopped any time. There are usually no minimums. It provides more cash than bank lines of credit. Money is advanced based upon actual sales. Therefore, the amount of the funds automatically matches the amount needed for continued growth of the business. This service provides a reliable, predictable source of income to ease any concerns about cash flow. It is a quick financing solution with reasonable rates.


Bookmark and Share