Are you carrying a lot of accounts receivables on your books? Have you gotten bogged down in trying to keep up with who owes you what and when? If so, your aging receivables may actually be costing you money. The longer you wait to collect, the more time passes without valuable income that could boost your cash flow. Instead of trying to manage these records on your own, why not try factoring your receivables? This option can truly be of benefit to your business in the short term and the future.
What Does Factoring Receivables Involve?
So, how do you go about factoring receivables? All you have to do is contact a factoring company and then sell it a portion of your outstanding invoices. In return, the factor will send you a lump sum that equals the majority of the invoice value. For example, if you were to factor an invoice that is worth $1000, the factoring company could issue you up to 90 percent of its value, or $900. As soon as you get the money, you can use it for any business purpose you choose. Once your client pays the full invoice, the factor will deduct its fee and send you the rest, closing the account.
How Factoring Receivables Helps Your Company
Why is factoring receivables such a good idea for small businesses? Here are some of the benefits of factoring:
1. You get fast access to cash for your company.
When you issue invoices, you often have to wait up to 90 days to see any payment. With factoring, you can get most of your money within a few business days.
2. Your credit risk goes down.
What happens when your customers don't pay on time? You get stuck with the non-payment amount and you have to find a way to cover your costs in the meantime. This could put you at risk for collection action if some of your expenses aren't paid. Accounts receivable factoring helps you avoid this situation.
3. You can sidestep the rigorous qualifications for business lending.
Factoring is far easier to qualify for than a loan from a bank. You don't have to pass a credit check, you don't have to show profitability, and you don't have to have been in business for a long time.
Factoring receivables benefits your business in many ways. Why not contact a factoring company about this financing option today?