More and more small and medium-sized companies are feeling the impact of the recent economic downturn. For some, slow paying customers have created cash flow issues that threaten their short- and long-term health.
Cashflow problems can result in domino effect that affects practically every aspect of the day-to-day operations of numerous companies who find it harder and harder to meet payroll commitments, acquire new equipment, expand their workforce and take advantage of discounts being offered by vendors and suppliers.
For many of these businesses, receivable factoring is the solution to their cash flow dilemmas.
Invoice factoring, often referred to simply as factoring, is actually a widely accepted approach to improving cash flow that's been in practice for hundreds of years.
Despite the fact that receivable factoring has seen quite a few changes to adjust to new developments in the market, it remains one of the most effective methods for many organizations to quickly convert their liabilities (slow paying receivables) into badly-needed operating capital.
Invoice Factoring Defined
Factoring invoices provides immediate operating capital to many small and mid-size businesses that sell to larger firms. Larger businesses are usually more creditworthy which often allows them to prolong their payment terms. Yet, this often creates cash flow problems for their smaller, often less creditworthy vendors.
Invoice factoring allows these smaller vendors to continue doing business with these larger businesses while not having to wait sixty to ninety days to collect on their outstanding invoices. This, in turn, permits them to focus on managing and growing their businesses - without the additional worry that can result from cashflow problems.
How Exactly Does Invoice Factoring Work?
Unlike traditional bank financing which typically requires that receivables be utilized for collateral, receivable factoring allows companies to sell their receivables at a discounted rate.
The invoice factoring company in essence buys your outstanding invoices, usually for between 70% and 90% of their actual value. Once the remaining balance is paid to the factoring company, it's paid to you, less a small fee. The factoring company also takes on all the risk associated with collecting from the customer.
What Sorts of Businesses Use Invoice Factoring?
Receivable Factoring is typically utilized by companies that sell their products or services to other businesses, and also to local, state and federal government agencies. Invoice factoring is also a highly effective way of improving cash flow for new and rapidly expanding businesses. Businesses that sell on credit terms also gain from factoring.
What are the Advantages of Factoring?
There are numerous positive aspects to invoice factoring. receivable factoring is ideal for businesses seeking to quickly generate the capital they need to meet their day-to-day expenses or, in some cases, to take advantage of new opportunities to expand and grow.
An additional advantage of receivable factoring is that it increases productivity by freeing up the personnel and assets that had been previously employed in tracking and collecting the outstanding invoices.
Finally, Factoring does not require a long-term, complicated contract. Usually, companies go back to more traditional sorts of financing upon completing their invoice factoring arrangement, in most cases with a better credit standing and a greatly enhanced balance sheet than before.
The tough economic climate of the past few years has squeezed many businesses almost to the breaking point, making it harder than ever to obtain financing. Invoice factoring allows many of these companies to leverage the power of a "hidden" but very valuable asset - their receivables.
Cashflow problems can result in domino effect that affects practically every aspect of the day-to-day operations of numerous companies who find it harder and harder to meet payroll commitments, acquire new equipment, expand their workforce and take advantage of discounts being offered by vendors and suppliers.
For many of these businesses, receivable factoring is the solution to their cash flow dilemmas.
Invoice factoring, often referred to simply as factoring, is actually a widely accepted approach to improving cash flow that's been in practice for hundreds of years.
Despite the fact that receivable factoring has seen quite a few changes to adjust to new developments in the market, it remains one of the most effective methods for many organizations to quickly convert their liabilities (slow paying receivables) into badly-needed operating capital.
Invoice Factoring Defined
Factoring invoices provides immediate operating capital to many small and mid-size businesses that sell to larger firms. Larger businesses are usually more creditworthy which often allows them to prolong their payment terms. Yet, this often creates cash flow problems for their smaller, often less creditworthy vendors.
Invoice factoring allows these smaller vendors to continue doing business with these larger businesses while not having to wait sixty to ninety days to collect on their outstanding invoices. This, in turn, permits them to focus on managing and growing their businesses - without the additional worry that can result from cashflow problems.
How Exactly Does Invoice Factoring Work?
Unlike traditional bank financing which typically requires that receivables be utilized for collateral, receivable factoring allows companies to sell their receivables at a discounted rate.
The invoice factoring company in essence buys your outstanding invoices, usually for between 70% and 90% of their actual value. Once the remaining balance is paid to the factoring company, it's paid to you, less a small fee. The factoring company also takes on all the risk associated with collecting from the customer.
What Sorts of Businesses Use Invoice Factoring?
Receivable Factoring is typically utilized by companies that sell their products or services to other businesses, and also to local, state and federal government agencies. Invoice factoring is also a highly effective way of improving cash flow for new and rapidly expanding businesses. Businesses that sell on credit terms also gain from factoring.
What are the Advantages of Factoring?
There are numerous positive aspects to invoice factoring. receivable factoring is ideal for businesses seeking to quickly generate the capital they need to meet their day-to-day expenses or, in some cases, to take advantage of new opportunities to expand and grow.
An additional advantage of receivable factoring is that it increases productivity by freeing up the personnel and assets that had been previously employed in tracking and collecting the outstanding invoices.
Finally, Factoring does not require a long-term, complicated contract. Usually, companies go back to more traditional sorts of financing upon completing their invoice factoring arrangement, in most cases with a better credit standing and a greatly enhanced balance sheet than before.
The tough economic climate of the past few years has squeezed many businesses almost to the breaking point, making it harder than ever to obtain financing. Invoice factoring allows many of these companies to leverage the power of a "hidden" but very valuable asset - their receivables.
About the Author:
American Receivable is one of the the most highly regarded factoring companies in America. Contact us at 1-800-297-6652 to find out if invoice factoring is right for your business.
No comments:
Post a Comment