Invoice Factoring to Improve Cash Flow
Invoice factoring has been in existence as a company financial method for several hundred years. Through that period of time receivable factoring has changed yet it continues to be an extremely powerful process for a company to convert their accounts receivables resources directly into capital.
Factoring is a method of raising cash flow, generally employed by smaller, rapidly expanding businesses that market to financially solid organizations. Factoring lets businesses obtain capital right away rather than wait up to 60 days for customers to pay. Businesses can then makes use of the cash to run the business as opposed to worrying about potential cash flow issues.
How It Works — Factoring is not a small business financial loan. A company’s accounts receivable are sold off to a factoring business for a discounted rate as opposed to being used as collateral for a loan. The factoring business buys the company accounts receivable, offering the owner an upfront payment amount, commonly between 70% and 90%. The factoring business buying the accounts receivable takes on the risk for collecting.
Who Uses It? Businesses who sell to other business, or those who sell to the government use invoice factoring. Businesses that require better cash flow, such as new businesses, fast growing companies, and businesses selling on credit terms may see this strategy helpful.
Benefits — The primary benefit from factoring is to quickly improve working capital. This allows cash hungry businesses target their assets on growth and company opportunities. A secondary benefit is that personnel are no longer necessary for collections and tracking receivables. Also factoring is much quicker and substantially less labor intensive than a loan. Factoring does not require a great deal of time or paperwork.
During a slow economy, it might not be easy for businesses to get business loans. Without additional operating capital, company growth maybe difficult. Invoice factoring is a technique to use unseen assets, accounts receivable to improve cash flow and permit a business focus on growth opportunities without increasing financial debt.
To see how invoice factoring might help your business, contact American Receivable at 800-297-6652. We have been helping developing companies for over twenty five years.
This entry was posted on Thursday, February 9th, 2012 at 5:32 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.