Staying out of the red with accounts receivables factoring
If you have customers that are slow to pay their bills, it can leave your business in a dangerous position. You may find that your cash flow is suffering and that you are unable to acquire the money you need to pay your bills on time. In order to stay out of the red, one option you have is to use accounts receivables factoring. What is accounts receivables factoring and how can it benefit your business?
Invoice factoring has been around since the 1930's and it is one of the best ways to improve your small business finances. Invoice factoring entails selling off your invoices to a company. This factoring company will provide you with an initial down payment of about 80% of the total invoice amount. Upon the collection of the funds from the customer, you will be paid the other 20% minus the fees of the factoring company.
How does factoring help since you are making less money? While you may be making less, you actually have more money that is free to use. You don't have to wait on your customers to pay for their large invoices and other thing as you will be able to have the money now to reinvest back into your company and to spend it on other things like new materials and supplies. By doing this you can actually grow your business in a timely manner.
Business that use invoice factoring save themselves the frustration of dealing with the collection of funds from the customers and you instead just need to wait on the factoring firm to provide you with the rest of the invoice amount. Trying to collect the money from your customers can be a challenge and it can often be a very frustrating process. Now you don't have to wait for your customers to pay their invoices and you don't need to call them or send out the invoices in the mail multiple times.
Why should you turn to invoice factoring? If you need money to stay out of the red, this is the easiest way to do it. You don't need to apply for a loan and you don't need to wait months before you get the money from the lender. Since lending restrictions have become tighter recently, accounts receivable factoring may be the only option you have. You can acquire the money easily and it will help you to buy new equipment and easily expand your business.
Companies that use accounts receivables factoring differ in a number of ways. Companies that sell products need the money now so they can pay for other business needs. If you have orders that need to be shipped but cannot be shipped because you have backorders on products, accounts receivables factoring can offer you the money you need to purchase the items for your inventory.
To qualify for accounts receivables factoring you need to work with customers that have decent credit ratings and generally pay their invoices in a timely manner. If you have customers that drag their feet and don't pay their bills on time, the factoring firm may not take on your account because they may be able to see that your customers may not pay their bills.
How long will it take for accounts receivables factoring to get started? Once you sell your invoices to the factoring firm, you will need to wait about 48 hours in order for the factoring firm to take over the accounts and start the collection process. The factoring firm needs to verify the credit of your debtors in order to make sure they can pay their bills in a timely manner.
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