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How a Factoring Advance Can Help Your Company Grow
Read this article to learn about factoring advances, a financing tool for emerging businesses.
Managing their cash flow can be one of the most important duties of a business owner or manager. And it can be one of the most challenging. Most companies have clients that pay invoices in 30 to 60 days. Many times, this forces business owners to juggle payments to suppliers while they themselves are waiting to be paid by clients. The end result is that you miss taking certain opportunities because you lack the working capital to pursue them. If your clients are not willing to pay you sooner, your best alternative is to use a factoring advance. Invoice factoring provides you with a substantial advance, usually 80% of your invoices, quickly after invoicing. This provides you with immediate working capital to pay suppliers and employees. Also as important, it provides you with working capital to follow new opportunities to grow your company. Accounts receivable factoring is a type of business financing that is offered by factoring companies. It is not a business loan, but rather an advance on an invoice. This difference makes it much easier to qualify for than conventional business loans. The biggest requirement to qualify is that you must do business with clients who are solid payers. An invoice factoring financing line can also be set up quickly. Getting started takes about a week, and subsequent financings can be done within one business day. Receivable factoring transactions are set up differently than other financing transactions. For starters, the factoring company is buying the financial rights to your invoice, for a fee. They buy your invoice in two installments. The first installment, called the advance, is paid immediately at invoicing and is about 80% of the gross value of your invoice. The second installment, called the rebate, is paid once your client pays the invoice in full. This rebate is the remaining 20%, less a small financing fee. Factoring fees vary and are based on the size of your financial line, the credit quality of your clients and the timeliness of their payments. They generally range from 1.5% for large accounts to 4% for modest sized lines. Although factoring invoices does not fit every business , it is a great solution for companies that have to wait up to 60 days to get paid for their invoices – but can’t wait.
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