How to Use a Commercial Factoring Company to Finance a Business

Finance a Business

Factoring is designed to increase cash flow when funds are limited and accounts receivable are high. It is short-term financing to solve short-term cash flow bottlenecks. The cash-poor company sells its accounts receivable at a discount to a commercial finance company known as a factor. Cash is made available to the entrepreneur as soon as proof of shipment is provided or on the average due date of the invoice. Most factoring arrangements are made for one year.

Factors make their money by acquiring a company’s invoices and collecting on them, charging the business a fee. Unlike banks, factors buy, pay for, and own the receivables outright. If your creditors don’t pay, the factor may incur a loss. Some factors require that the entrepreneur establish a reserve for bad debt of approximately 5% of the account. If the account is not collected within 120 days, the factor will draw against the reserve. If the receivables eventually are collected, the factor’s return on investment exceeds that of conventional lenders.

Many business owners use factoring when their banker turns down a loan request that they had tried to guarantee with their accounts receivable as collateral. Under factoring, accounts receivable are not used as collateral against a loan but instead are sold directly, at a discounted value, to a factoring company. For example, if the factoring company uses a one-time charge and discounts 6%, then for every $1,000 in receivables, the seller receives $940.

Some factors discount according to a schedule, paying a smaller percentage up front and then paying an additional percentage depending on whether the receivables are collected within 30, 60, or 90 days.

The factor takes over the entire collection procedure, including mailing the invoices and doing the bookkeeping. Each of your customers is notified that the account is owned by and payable to the factor.

If you are a new business and your accounts receivable are evaluated as marginal credit risks, you may not be able to find a factor that will accept your accounts receivable. Let’s face it: although they take greater risks and are more liberal lenders than commercial banks, factors need to be assured that your customers will pay their bills. They will execute substantial credit checks on each debtor and carefully analyze the quality and value of the invoice before buying it; they look to the strengtMof the receivables and creditworthiness of the invoices that you are selling them. Factors will also establish credit limits for each customer.

Factoring is not the cheapest way to obtain money, but it does quickly turn receivables into cash. The advantages of factoring are receiving a cash injection quickly, paying bills in a more timely manner, obtaining more credit, and fostering better growth than traditional borrowing. Also, the fee is an expense and offsets taxable income. Essentially, the entrepreneur is buying insurance against bad debt.

The chief disadvantage of factoring is the high cost of money relative to traditional borrowing. Also, to many entrepreneurs, factors receive outrageously high returns. A business concerned with cash flow but not with collection might want to pursue the less costly route of using accounts receivable as collateral for a commercial bank loan.

Overall, factoring can be compared with using a credit card for your business. Factors work best with businesses that have cash flow problems because of long delays between making and selling goods and then collecting cash. Start-up ventures, emerging businesses, and service companies are prime candidates for factoring. For recommendations and references about which factoring companies to use, talk to your trade associations, to members of the infrastructure, and to other entrepreneurs in your industry.

 

Instant Loans – Funds by Applying Online and Gaining Quick Sanction

Funds by Applying Online

When you need to go to office everyday, you have very little time for other things in your life. This thing may also happen when you are facing the problem of credit scarcity. What can be done in such a situation? Such a person can apply for instant loans without any apprehensions. With the help of this fiscal service, the borrower would get hold of funds by applying online and would be gaining quick sanction.

The mode of financial transfer that is followed here is electronic wiring, this would make the documentation completely nil. One would not waste his time in any undesirable filling and faxing of papers in this process of money lending.

If you want to apply for instant loans, you can put into use the free of cost and no obligation application form that would be given on the website of the money lenders. You should fill this form with your authentic personal information. The borrower would get a rapid approval, as and when the process of verification would be over. In as quick as 24 hours, the money would get transferred into your bank account.

Depending on your settlement ability as well as monetary ability, you can grab small cash advance that falls in the range of £80 to £1500. You have to pay this credit aid back in the comfortable repayment tenure of 1 to 30 days. One can do a number tasks that hold importance for him. You can pay the credit card installments, can pay the household and utility bills, can get small house modifications done, can send the car for a repair job and so on.

There is no need for you to give credit confirmation. IVA, arrears, insolvency, bankruptcy, foreclosures, CCJs and so on are no-issues at all for the lenders.