In an economic climate that is slightly unstable and recovering from the worst financial crisis for many decades, a lot of businesses are finding it tough to survive. Surprisingly, not many businesses know about accounts receivables Factoring.

Finding finance is hard, whether that finance is just to pay outstanding bills, pay staff, or to grow the company.

Cash flow issues are one of the most common problems small businesses face and getting out of those kind of situations is never easy at all.

Accounts Receivables Factoring Can Help

With Invoice Factoring a company is able to grow it’s business in line with the number of invoices it produces. A company no longer has to wait for payment from a customer because it is effectively selling it’s invoices to a third party company.

Companies can then be loaned up to 95% of the value of their invoices at any one time.

A Great Way of Freeing up Cash

This is really a fantastic way of making some cash available for your business to grow it, or just pay bills. You don’t have to secure the finance you are taking out against any other assets other than your invoices, so there is less risk for you.

Accounts Receivables Factoring definitely solves many problems for small and large businesses alike. Even a large business isn’t immune to cash flow problems.

Start-up Companies

A company that has just started up and hasn’t been trading long can take advantage of Accounts Receivables Factoring because they may need injections of cash quickly. Business could be performing very well, but without customers paying invoices when they need the money they could very quickly find themselves in trouble.

There are a lot of Factoring companies out there that can provide services for your business. It comes down to looking at each provider and deciding if the service they offer is the right one for your business. Does it fit in with your needs at the moment? If the answer is yes then they could be a very good fit for you.

If you have never considered Factoring as a solution to some of your businesses cash flow issues, maybe it is time to look into it.

The first thing you need to decide on, is whether Invoice Discounting or Factoring would be suitable for your business.

Businesses both small and large are using Factoring as the way to solve some of their immediate cash flow issues.

What is factoring or invoice discounting?

In a nutshell, Factoring or another commonly used method known as Invoice Discounting are both terms for saying that you are going to borrow money on the worth of your sales ledger.

More and more companies are seeking this method of finance, so there are more Factoring providers starting to appear on the market.

How long do you have to be trading to be picked up by a Factoring company?

The best part about Factoring that makes it helpful for some is that you do not have to be trading for a long time.

Although this helps, the majority of Factors will now advance money to companies that have been trading for under twelve months. The recruitment industry seems to be one of the favoured industries in the Factoring world. In this particular situation the clients may not pay for several weeks after Factoring, but the temp staff members are paid each week.

Is this the right choice for my business?

The most ideal situation for Factoring is if you have a small management team. Factoring will allow them to use their time in other areas instead of having to always be trying to collect money from customers.

Small business may find it easier to have their sales ledgers taken care of by a Factor as opposed to having to employ more people that you could use in other areas if your company.

Is my cash flow strong enough to factor?

Many companies feel that they may not meet the requirements for Factoring, well; you may be surprised to know that the requirements are not all that stringent to meet. All you really have to be sure of is that you have raised invoices regularly. There is no need for a large turnover, A1 credit or a strong trading history.

What needs to be done?

All you need to do is send an invoice to you customer. You have to give the Factor a legal assignment that you are selling your ledger debts. This must be added to your invoices, generally by putting a sticker on them. The customer will know that you are going to be using a Factor.

Then you send all the copies to the Factor, the Factor pays a percentage of the invoice. Generally up to 90% and it will be paid according to the terms set by you and the Factor. The factor will help run your ledger, collect payments or chase those non paying customers.

The Factor will pay the balance of the invoice, minus the fee that you have agreed upon. Whenever possible, electronic links can be used to speed the process up and allow you access to your money.

Sometimes issuing invoices can be time consuming and many businesses have to wait a while to receive their payment, and so a company can be placed in an awkward position.

You may also have some bills to pay or need cash to pay your suppliers or grow your business. We suggest looking into “Factoring” and the benefits it provides.

Factoring is when a company lends a customer 90% of the invoice value. Factoring is also known as a way to finance a company with the value of an invoice that has been issued.

When a business grows due to increased sales more money can be borrowed and in such cases, Factoring, which is a flexible way of financing, is used. Furthermore, you will not need to have an asset in order to get a loan if you use the Factoring method.

If a business uses Factoring it can:

1. Obtain within 24 hours, 90% of the value of any invoice.
2. Receive a loan that is much more cost-effective.
3. Always know when it will get paid.
4. Enable the business to have less debt management.

That is why it is always preferable to raise money for a growing business by means of the Factoring method of financing.

Whenever there is competition, businesses find themselves needing more cash and the alternative solution is the business will get greater discounts from their suppliers and a more advantageous credit rating.

When Factoring is used, Cash Flow will also improve, without adding the debt that is usually involved. In fact a company will receive cash for any outstanding invoice by using the Factoring benefits, and in this way it can purchase equipment, meet its tax requirements in a timely manner and pay off any suppliers it may have.

In the case where you are selling services or goods to a government account you need to make the payment within 30 or 60 days and will be in need of cash in a short amount of time. In order not to have your cash reserves eaten up quickly, you can use Factoring and the benefits it has to offer:

• It is always easy to obtain Factoring.
• To set up a Factor account only takes a couple of days.
• You will not have to wait a long time to get your invoices paid when you use Factoring.
• Your business will always have working capital at hand.

Factoring will also improve a customer’s credit service by streamlining any new customers in need of approval, reducing debt that is bad or insufficient, and have greater control on accounts receivables by reducing administration costs.

The best thing Factoring has to offer is flexibility, and the advantage is that a business can always Factor as much or as little as it wants to, as there are no maximum or minimum amounts you can Factor. As previously discussed, the funding is based on the strength of your customer’s financial support.

When you are Factoring you are selling your invoice to a Factor and getting cash on a discount that is acceptable to both parties. Factoring relies on your customers and how credit worthy they are. This in itself is very different from the traditional bank method of loaning money.

With the understanding that commercial Factoring affects not only the seller and its factor, but their clients as well, there are a number of advantages and benefits for all parties involved.

Since the responsibility of collecting the payments falls on the Factor, making the seller exempt from all credit and collection-based issues the theory behind the concept is then, that everyone in part will be paid off in an ample amount of time without having to worry about any financial hang-ups.

Some of the main “advantages” include the fact that no money is being borrowed by the business. The actual money that is due to the seller is based on the credit situation for that seller’s clients. What makes this such a good benefit for those involved in commercial Factoring is that even new companies have a chance to take advantage of Factoring regardless of the company’s history, such as if that company has had to file for Bankruptcy.

A second benefit for a business that is part of Factoring is that the factor will make any decisions as to a client’s credit history when sending them an invoice.

If a credit analysis shows a lack of loyalty in a client’s ability to pay, then the Factor can terminate that client’s past relationship with their seller.

Lastly, and probably the item with the most concern behind it is that a payment can be received by the seller from the Factor within a short time period after the shipment, delivery and invoicing on the sold goods has been completed without that seller having to wait for credit approval from a particular client’s financial resources.

In most cases of shipped goods through commercial Factoring, a payment is generated by the factor to the seller within a 24-hour period.

Other benefits pertaining to being a part of Factoring that might be of interest are included with some of the services that are offered through a Factor such as the “same day funding” practice.

There is also the benefit of the seller receiving daily reports on the status of their goods to ensure the seller receives a substantial profit.

There are no standing term contracts that have to be signed by the seller in order to use the services of their Factor, and also the seller will receive the free services of the Factor’s credit and collection staff to ensure they spend more time selling their goods instead of checking out their customer’s credit status.

Finally, working hand-in-hand with a Factor creates an incentive for the seller because for one, their work capital will increase without causing any change in their equity, or their own credit.

Sellers will also be able to take advantage of discounts on any supplies they purchase when they make early payments to their respected Factors, and what ever type of equipment is purchased by the seller will increase that seller’s profits as well.

The whole idea of the seller or company joining forces with a respected factor is to strengthen credit ratings and boost profit for everyone involved.

Many young, start-up businesses suffer tremendously in the beginning because of a shortage of cash flow to keep the business operating smoothly. Options such as bank loans and overdraft protection can often do more damage than good.

Overdrawing on a bank account can become very costly with all of the fees involved. Loans always come with high interest rates and the interest alone can eat into the profits of the business. Often these extra expenses bite into the budget so much, there is much less to purchase inventory with.

Eventually this can cause a business to fail. Factoring can prevent a lot of this and help keep a smooth cash flow for the business.

If you have clients who are slow to pay for products or services, it takes it’s toll on the business. There may not be enough cash flow to keep the business running smoothly.

Extending credit to your customers or clients is very important in the business world it is almost unavoidable. So you have to figure a way to fill the gaps, and Invoice Factoring seems to work well for many to fill those gaps.

Invoice Factoring can help by paying your invoices within 2 days for you on a regular schedule. Some clients may take as much as 30, 60, or even 90 days, in some cases, to pay, so this service can keep your business from folding before it even gets started.

Invoice Factoring is a type of financing that pays your invoices for you. The fees for this will vary according to the transaction and the company giving you this service. Finance charges can be as little as 1.5% and up.

Invoice Factoring works by delivering the products or services and invoice for the company. The business will sell their Invoice to the Factor and they in turn will give you your first payment which will be 70% to 90% of the invoice.

This is known as an Advance and this helps you keep your business working smoothly. By getting immediate funds you will not have a lag in finances. After the client pays the Factor the amount on the invoice, the business will then receive the remainder of 10% to 30% of the invoice.

Factoring is much easier than getting a business loan and much quicker to acquire. If the business has clients with good credit, there is no problem getting the Factor to help you with your business.

Getting a business loan may take longer and it would be for a certain amount of money, whereas the Factor depends on the invoices and can be ongoing.

If you have a business and your business is suffering, you might want to consider the option of Invoice Factoring. Get some quotes from the Factoring companies in your area and decide which one you want to do business with. They are in business to make money too but they are also there to help your business succeed.

Factoring is a form of commercial finance, when a company takes the decision of discounting its receivables from accounts at times when the factor bears the account’s credit risk.

Factoring is useful when a business company sells the invoices of it’s customers to a financial company. Invoice finance is sometimes referred to Factoring which is a method of improving the cash flow of a company. It has been one among the most efficient forms of today’s finance.

The History of Factoring

The Factoring tradition has been traced since the period of the Mesopotamian era by King Hammurabi. Several documents prove the existence of Factoring before the American Revolution for shipment of various raw materials to Europe.

During those days, Factoring agreements were based on “all or nothing”, whereas in recent years, a business is allowed to Factor any desired number of invoices with single Invoice Factoring.

When a small business and wants to acquire some additional finance to improve business, then Factoring could be the best technique to speed up the companies flow of cash. Many people get confused with Factoring of receivable accounts. This financing generally refers to an agreement of loan between two business parties.

Factoring usually involves financial transaction among three parties. The worthiness of a customer’s credit is the primary feature that matters with the Factoring agreement.

Single Invoice Factoring, most commonly known as Spot Factoring refers to an advanced practice of picking a spot, or selecting Factors of desired invoices, thus permitting to retain maximum amount when one spends minimum cash with the Factoring company.

Benefits of Invoice Factoring

Benefit 1. Improves cash flow

Here cash flow is efficiently managed. Having access to a ready cash flow enables a business to present oneself in a competitive way which further results in the growth of business.

Benefit 2.Offers flexibility

Invoice Factoring provides better financial access which helps a company to be flexible and also able to negotiate over discounts in payments from suppliers, which results in greater savings.

Benefit 3.Saves precious time

Invoice Factoring allows one to take more time looking over productive issues rather than wasting time on chasing the payments.

Processing of Invoice Finance

With Invoice Factoring, a businesses supplies goods and services to it’s customers and a payment invoice will be made payable to finance company. They then send a copy of the invoice to the finance company which decides to pay an agreed percentage of invoice total in advance.

When the customer gets settled with the invoice, payment is made either directly to finance company or by Invoice Discounting method; a business might need the help of lender to make payment to the business account. The subtracted amount of debt balance and agreed service charges will be paid by the finance company.

Finally, the finance company then issues ledger statements of the monthly sales to the borrowing business company.