Small Business Factoring
Just think for a minute about that business you want. Whether your idea for your business puts you in the loop of small, medium, or larger companies, there is a lot you must learn, aside from advertising and opening your doors to customers. You must learn about what makes your business profitable showing healthy growth.
A business owner must know some interior particulars of how to run the business from a bookkeeper’s advantage point. You, now a business owner may not have to time to factor, or search for particular types of financing such as accounts receivable financing, purchase order financing, or asset-based lending.
Even if you leave this part of the business up to a skilled and knowledgeable employee, you still know what these practices entail. When you need extra capital for your business, these are the lending practices of most successful companies.
Factoring works well if you have have a working relationship with the best factoring companies. When you get to a point, you need some extra funds to operate factoring is an excellent way to obtain these funds. What you do is find a third party who is willing to give you credit on some of your accounts. When a business needs quick cash, they turn to factoring which is an entirely legal business process.
It makes no difference if you sell a product or a service you must complete an invoice for the sale. When you have sold products to a client and the client is either slow in paying you what they owe or has not paid on that account, you sell that account to a third party. This individual or firm pays face value on the account up to six percent of the cost of the account. They pay a price reflecting a discount. Factoring slow or non-paying accounts to a third party quickly raises the extra cash you need.
If your business does not have perfect credit and you do not think you can obtain a successful loan for the money needed, factoring may be the right way for you get quick cash. There are no risks attached to factoring and aside from maybe a bit higher interest rate, factoring your inactive accounts is the way to go. Factoring is not a long-term solution for any company. Factoring is meant as a short-term and quick fix when cash is at a premium.
No one knows what lays in the future, especially a business owner. Your business may be going through an immediate crisis that means you need quick funds that you know you cannot get or want to get using a loan. Factoring helps to meet these immediate needs. Maybe you do not have a crisis, but your company is growing, and you require more equipment or inventory, factoring can help and may be the answer.
Many your business is taking off, and this growth spurt means more inventories to meet the demands of your clients. While this is all good, you may not be ready financially to expand. A real business owner never turns down the opportunity for growth through expansion of inventory. If you find you all of a sudden do not have enough inventories to meet, customer demands your clients are going to go elsewhere where they can get immediate satisfaction. Not having enough products to meet customer needs is not good, so you factor. You simply sell off the accounts that are not producing a profit in exchange for cash on the account.
Remember, the third party you choose needs to know your products and services. They need to know about your industry before you dare factors accounts to them.