As a small business owner, you want to deliver your customers' orders right away. Oftentimes however, you come face to face with a problem every small business owner dreads: CASH FLOW. You need the capital to operate your small business but your money is tied up in 60-day accounts receivable and unpaid invoices. Will your customers wait until your receivables get paid? Obviously not. If you cannot deliver, they would probably just buy from your competitors. You could apply with a bank for a small business line of credit but, assuming you get approved, it could still take quite some time before commercial funding comes in. And that money from the bank is considered a debt. So what else can you do? You could consider funding your small business without incurring debt through business factoring or invoice factoring.

Using unpaid invoices from your credit-worthy customers as an asset, invoice factoring turns your accounts receivable into immediate cash you can use to continue serving your customers. Unlike other sources of commercial funding, invoice factoring is not a loan. The factoring company, called the "Factor", buys your unpaid invoices from you at a discounted rate and immediately advances to you as much as 85 percent of the amount as an initial payment. The Factor, in turn, obtains all rights and risks associated with the invoice. The Factor bills the debtor account and after the invoice is fully paid, the balance is then paid to you less the factor rate.

Whether you are an established corporation or just a start-up small business, invoice factoring can provide you a number of benefits:
  • immediate payment, providing you with much needed funding right away;
  • your small business credit line grows as your sales grow;
  • easily get approved within just a few days;
  • the factoring company assumes all risks associated with the invoice;

As much as you dread it, extending 30 to 60-day terms to your customers is an unavoidable and necessary inconvenience in operating a small business. Exploring all available options, such as invoice factoring, to mitigate any cash shortfall resulting from these extended credit terms is vital to the survival of your small business. Get a more in-depth study of small business factoring and see if this option is suitable for your business. Search online for providers of invoice factoring in your area. Get quotes from these financial institutions and see which offer is most advantageous for your small business.

1 comment:

  1. Yes, factoring is the best method of fixing cash flows. It is another option to have cash flow other than bank loan. Most small companies were able to stay in business because of this. The good thing is, factoring aid is now on the web for immediate help.