How Factoring Works

by Factoring Companies on June 23, 2010

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.

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