It’s inescapable for you to experience money flow problems at some point if you’re a small business owner. Many companies face shortages during the start-up phase, while others don’t have the cash they require to grow their businesses. By getting professional assistance on forecasting and budgeting and focusing on your efforts in collections, you can enhance your money flow. But when these alternatives aren’t enough, factoring can help.
Any cash-strapped company will find factoring a quick and simple solution by simply exchanging Accounts receivable and invoices for instant cash. But it has a price. Just like a bank, a fee will be collected by the factoring company 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 accounts receivable aging report;
A certificate of incorporation or partnership agreement;
Evidence of insurance, invoices and other business documents.
A factor will want to make certain that your customers will pay their invoices on time as the responsibility of picking up them will become the factor’s. When you know which invoices the factor will buy the factor will generally pay.
Once you establish which invoices the factor will purchase, they will sometimes pay you an advance; for instance, the factor might pay you eighty percent of the whole amount of your invoices and then repay you the other 20 percent when your customers pay their invoices. They can naturally subtract the fee.
You’ll pay anywhere from 3% to 7% or more of the total the factor collects. Your invoices’ size, number of days in the collection schedule, and creditworthiness of your clients establish the charges the factor collects.
If you need cash in a rush, Invoice factoring is definitely a viable solution. You can receive payment in a week or less once your application and invoices are accepted and examined.
Keep in mind, some factors do not like to work with a small amount of receivables, and like to deal with companies that have $10,000 or more in monthly invoices.
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