Invoice Factoring

It is often difficult to secure financing for your small business whether times are good or bad. Banks and traditional lenders usually require a few years business financial history to back you up before they will give you business finance. To get small business loans you need collateral to put up against any business financing they agree to – this means putting up real estate or equipment to give you the cash flow to grow your business.

Many small businesses (e.g. employment agencies and consultancies) have trouble getting business financing as they do not have these assets to put up as collateral.

What you may not know is there are other ways to get financing such as accounts receivable factoring to get the cash flow you need. Invoice factoring can be an excellent solution for a business that waits between 30 and 60 days to get paid on each and every invoice they raise.

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How Accounts Receivable Financing Works

How accounts receivable financing works, for example, is an employment agency bills a client for $350,000 with the invoice due in 60 days. This is a lot of money for a small business to carry for a couple of months. While waiting for payment, there are still the everyday business costs and staff need paying on a regular basis.

If a small business does not have enough capital in reserve then it will run into obvious problems. What you can do is get advance payments by factoring accounts receivables.

It is a simple process once you have set up an account with a factoring broker. All you do is submit the invoices you want to factor with the aging report. Then the factoring broker verifies your invoices and the cash advance arrives in your account. From then on, the factoring company handles recovering the value of the invoice

Factoring companies pay between 70% and 90% of the total value of the invoice upfront. Factoring finance gives the business the cash flow to operate as usual. When the client pays the full invoice balance, the factoring service pays the amount outstanding on the invoice to the business minus a factoring fee. Factoring brokers charge a fee that varies from between 1.5% and 4.0% for an invoice due within 30 days.

How to Qualify for Accounts Receivables Factoring

It is a completely different process to qualify for accounts receivable factoring compared to applying for a loan. To qualify, a company needs to be reputable with a good trading history, not have any liens and a good client base of customers that pay.

Factoring companies take your invoices as collateral for a cash advance on those who owe you money. This provides cash flow to companies whose only assets are their clients and a good reputation.

Invoice factoring is an excellent way of getting the cash flow needed for a startup business over the first few years. When you are starting out you may find the more traditional lenders say no. Another challenge can be your credit profile and you may be at the maximum limit of your credit cards – it costs heaps to start a business up.

If the banks turn you down for a small business loan, consider invoice factoring for financial success.

Benefits of Factoring you Account Receivables

The biggest benefit to factoring your accounts receivables is there is no minimum time limit on how long you have been trading for. In realistic terms, invoice factoring is selling your account receivables instead of waiting for up to 120 days for your clients to pay. It gives you instant cash flow and factoring companies take over recovering the invoice.

What a great idea – your invoices are a source of instant cash to help your business to survive and grow into the future.

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Invoice Factoring or Discounting – which suits you