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Make It Rain: Get Fast Access to Cash With Invoice Factoring

June 05, 2012 | Comments: 0 | Views: 212

Invoice factoring has spurred many hot debates in the business community. This alternative form of finance has had difficulty shaking its reputation as "the lender of last resort". Truthfully, there are many factoring companies still out there that operate in this manner: charging sky-high prices, wrangling desperate business owners into long term contracts, and aggressively pursuing their customers for collections. It seems that everyone has a sister whose husband's second cousin's next door neighbor had a bad experience with a factoring company, so the lesson is to just stay away.

In the recent years, many businesses have made factoring an essential aspect of their financial planning. There are several reasons that factoring is gaining widespread popularity in the states. The biggest reason is that cash is king. Even Bloomberg Business is reporting factoring as one of the top five alternatives to traditional bank finance.

Companies use factoring to catch up on payables and capitalize on growth opportunities. Yes, factoring is usually more expensive than a traditional bank line of credit-but the opportunity cost is far greater. Many businesses pass up new growth opportunities and turn business away because they don't have the cash flow to support it. Invoice factoring solves this problem.

The way invoice factoring works is quite simple: the factored invoice proceeds are sent to the business in two installments. The first installment (usually 90% of the face value of the invoice) is sent to you within 24 hours after submitting the invoice to the factoring company. The second installment, also called the reserve, is remitted to you, less the factoring fee, when your customer pays the invoice.

Factoring, by design, will grow with your company as your sales grow and self-liquidate if they cool off. The problem with a traditional bank facility is that many companies don't have enough collateral for a traditional banking product, and most traditional lending institutions can't keep up with rapid growth.

There are very few eligibility requirements to qualify for invoice factoring. The most important requirement is that your transactions are business to business sales.

Here are some examples of situations where invoice factoring is used:

  • Growing companies that carry trade receivables
  • Young companies that are growing but restricted by their cash flow and borrowing limits
  • Companies that continually have overdraft issues
  • Any company looking to open a line of credit
  • Any company that is delinquent on debt payments
  • Any company adverse to debt and wanting to grow on its own assets
  • Companies needing to offer flexible terms to be competitive
  • Debtors-in-possession
  • Companies with IRS tax liens
  • Any company with bad credit
  • Seasonal Industries
  • Spot Sales
  • Customer Concentrations
  • Under-capitalized Businesses

Businesses should conduct their own due diligence when comparing factoring companies. Many businesses choose to use factoring brokers to shop the deal on their behalf, which offers many advantages. Most factoring brokers can save businesses time and money by doing all the leg work for them, and they have the knowledge and leverage to source and negotiate the best deal available to the business

If you need access to cash to sustain and grow your business, invoice factoring may be the choice for you. There are so many variations in invoice factoring terms, let source and negotiate the best possible terms available to you. So you can get back to what you do best-running your business. Check out our website for more information, our services are free to borrowers.

Source: EzineArticles
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How Invoice Factoring Works

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