Factoring Made Easy...
As a small business owner, you may need access to extra funding periodically in order to maintain cash flow, pay suppliers, meet salaries, and handle monthly expenses such as rent and utilities. Unfortunately, securing a short-term loan is becoming more and more difficult due to the increased turbulence of traditional lenders in today’s economy. Many lenders in today’s market require a good to excellent credit history and at least 2 years of solid documented revenue.
This is one of the main reasons why factoring loans have been gaining in popularity as a viable alternative to conventional small business financing. Factoring is different than most traditional secured and unsecured business loans. This type of financing is obtained through a private lender and therefore has different underwriting terms. This type of loan uses your accounts receivables for approval, and does not require you or your business to have an excellent credit history. If you feel this type of loan may benefit you, read more below or give us a call. We’ll be happy to explain all your options in easy to understand language, so you can decide what's best for your company.
What is Factoring?
Invoice factoring is also known as debtor and asset financing, accounts receivables factoring, asset-based financing and invoice discounting. This financial tool is not a loan in the traditional sense of the word. Instead, this type of financing is an all-out sale of your company’s accounts receivables to an investment company, (factor) in exchange for a cash payment. When this happens, the ownership of your invoices are actually transferred to that of the factor. While your client’s may never realize that the invoice has changed hands, the company receiving ownership of the invoice, will be the one to collect the payments due.
The Process of Factoring Your Company's Receivables
During the initial purchase of an invoice, the factor will pay 70 – 90 percent of the invoice’s value to the original holder. After all payments are collected and the invoice has been 100% satisfied, the remaining 10 – 30 percent will also be forwarded to the original invoice holder. The factor will typically retain a small fee, or rebate, in the amount of 1.5 – 5 percent of each invoice for offering this service.
For any business owner, having clients who use 30, 60, or even 90 days to pay their bills cannot only be frustrating, but can also have an effect on the businesses cash flow. This lack of cash flow can hurt the day to day activities of any business. Selling your company's invoices can get your company the immediate access to cash it needs. Selling your invoices can also save time, and the expense and aggravation involved in chasing down payments from your slow paying clients.
When obtaining other types of small business financing is not plausible, factoring can be a great solution. Although factoring is not the least expensive way to obtain the funding you need, it is an option worth considering.
We Can Help You Find The Best Factoring Companies
If you need working capital but are uncertain which type of small business financing is best for your company, contact us today. Our small business loan experts are always standing by ready to explain the choices that are available to you in detail and without pressure. Our services are free and there’s never any obligation to proceed if you don't like your small business lending options, including factoring.