Facteon Blog

As a business owner today, you may be hearing a bit more about accounts receivable factoring than ever before, and for good reason. There are many business owners that have found invoice factoring to be a great deal more efficient in funding small business ventures and gaining operating capital than obtaining a small business loan. Using invoice factoring instead of borrowing money is a great deal more beneficial for small business owners that may be new within the industry or may be trying to regain an active status within the business world. Finding the benefits is a matter of understanding what invoice factoring is, and how you as a business owner can use it to fund your business.

How Invoice Factoring Can Benefit You

Accounts receivable factoring, also referred to commonly as invoice factoring, is a great resource for small business owners to have readily available. With many clients that may have invoices due, you can easily sell these accounts receivable, obtaining the amount due to you in cash from the factor. There will be a small percentage held until your clients pay their debt, as well as a small percentage of the total value held as payment for the factoring. Not only are you able to receive funding no matter the condition of your credit, but you are also getting funding based on monies you have already earned. Instead of waiting for your clients to make their payments in order to get the incoming cash into your business, you can take the invoices due within the next couple months, converting into instant cash for your business.

You will be able to use these funds for anything that may be needed within your business, or even to expand, grow, or remodel your business. This could be done through reorganization, remodeling your office, or even building onto a building or your existing business. Even if you are trying to gain better operating capital or venture capital to take on a new direction within your business, invoice factoring can be the most ideal method of obtaining the needed cash without owing any money back.

For those of you out there that have cash needs from time to time, you don’t have to turn to high interest bank lending or even large loans to fund your needs. There are better ways to get the money you need at a lesser amount to avoid the debt risk and the high rates. Payday loans aren’t based on your credit, but on your monthly income and the amount of your paychecks. A payday loan company will require you to sign them a post-dated check for the amount you are borrowing, plus a fee. Not being based on your credit, you don’t have to worry about a payday loan affecting your credit, however you can only have one open per state, which is why it is best to ensure repayment for future access to funding.

Payday loans can differ amongst companies. Some may only offer up to $500, while others may offer as much as $1,500. These loans aren’t very high because they aren’t meant for large investments. Payday loans are intended for emergency cash access for medical expenses, bill payments, or even for a purchase that you need extra cash to afford. Whatever the reason you get a payday loan, you don’t want to make it frivolous as these loans can gain a great deal of interest if you don’t repay by the date due.

Payday loans offer consumers funding much the same as accounts receivable factoring offers businesses. There is a large difference much the same, but the funding isn’t based on a credit score, only what you are expected to bring in on your next check. You will have the option of going back for another once you pay off the first, which provides many with a low risk, quick option and the assurance that there is always a source of emergency funding open to them. You don’t want to get into large loan obligations when you can easily take advantage of payday loans that offer the quick cash you need, sometimes in only minutes. There are several companies online as well that will offer you cash within as little as a day.

Payday loans have become quite a common source of funding for today’s workforce, as many people are veering away from the bank lending and large loan arena. Payday loans offer a quicker, more sustainable funding option that is easy to repay, less to owe, and offers much lower rates and interest fees. The thing is, however, that there are interest fees attached to many if they pass their payment date, and you could quickly spiral out of control. The only way to avoid getting into a mess is to be careful with any payday loan you obtain.

Nowadays, you can find several payday loan companies offering instant cash online. The thing is most of the sites you are seeing are third party advertisers so you want to be careful to which ads you are responding to and which applications you are completing and submitting. Some sites, however, offer a matching service that will actually match you with loans that are appropriate for you, allowing you to avoid the search and dodging process.

Another thing you may want to watch for when seeking payday loans is the interest and other rates associated. You want to typically go for a payday loan that offers a loan you can easily repay. Quick and instant repayment is the best choice to avoid extra costs associated with the loan, as well as to open the access to the payday loan if you ever need it again.

A payday loan for consumers is quite similar to the invoice factoring for businesses that are needing to redeem payments that are due to them based on invoices. There are different aspects to both, but they are great options for funding that isn’t based on your credit, as good credit isn’t as easy to obtain as it once was. There are many people affected by the poor economy and for this reason there are several companies that will offer payday loans to people from $100 to as much as $1500 and more at some. The higher amounts may take credit into consideration, but most companies will base their decision on your employment checks and whether or not you have a checking account.

It just doesn’t cut it these days to operate a business without the appropriate business insurance. Whether dealing with in-house clients that may be injured within the workplace to dealing with a great deal of employees, whose safety must be considered, not to mention many other unexpected situations that could require insurance for best handling, invoice factoring is a great way to ensure that business insurance costs are paid on time and in full.

High Costs with a Solution

Paying business insurance can be quite costly, and the more involvement with consumers, the higher the policy may be. The more coverage that is needed also greatly influences the amount of a business insurance policy. Paying these high costs can be done through invoice factoring, ensuring that you always have this expense paid without a big effect on business profits and incoming cash. There are many fluctuations that can be present within a business’s finances, and reducing the fluctuation can start simply by using accounts receivable factoring to fund insurance costs.

Why Invoice Factoring is Ideal

Getting your business insurances paid each month is a requirement and cannot be skipped. If you skip one payment, you can be at risk of losing your policy and the rates increasing in the future. In order to avoid missing any payments, you can simply sell your client invoices for a discounted amount in order to quickly pay off the insurance costs and go about business as usual.

Avoiding getting caught with an expense that can’t be paid because all of the business profits are tied up in invoices is an issue of yesterday with invoice factoring providing the most optimal business funding solution. Getting the funding that is needed immediately is a matter of selling invoices and relinquishing the responsibilities of the payment. No longer do insurance costs of a business have to affect the incoming cash flow, as accounts receivable factoring can be the best option for getting the funding that is needed without having to obligate the business into a debt that will greatly increase into the future, causing a great decrease in cash flow later on.

Reading, watching, or hearing the news, it is no secret that there are many large businesses and corporations receiving bail outs to get out of financial crisis. However, there isn’t much talk about a bailout plan for the small businesses that have, for so long, made up communities throughout the U.S. So what are these small businesses to do when it comes to bailing out of debt and financial crisis? Invoice factoring provides an ideal option that will give these small businesses the bail out that they have earned through many years of dedicated service. Even new businesses seeking to enter the economy without the burden of not having gained credibility can get a great use out of invoice factoring.

Providing Smooth Cash Flow

There are many businesses that are experiencing the decreased cash flow and hardships of having less than perfect credit. Getting loans is an option only for businesses with a credit score of 720 or better, with many of the decisions based on the business owner’s credit score as well. This can be a big issue for those that are living their normal lives, but aren’t maintaining a high credit score, unaware of the severe impact it will have on the business’s ability to obtain funding. Using accounts receivable factoring, small businesses can ensure that each month, unpaid invoices are converted into on-hand cash, reinforcing the steady cash flow.

Paying Creditors Back

Businesses are only going to rebuild credit through repaying creditors, which is much easier with the use of accounts receivable factoring. Paying monthly payments towards debts can be done through the cash obtained through invoice factoring, ensuring that the business isn’t missing the monthly payment, ensuring that there is an appropriate bail out for the small business owner. Giving the business the money needed to get the expenses paid as efficiently as possible is the full intent of invoice factoring, easing the process of obtaining funding when it is needed for business functions, ventures, operations, and much more. Invoice factoring is extremely useful for businesses that want to regain stability without long term negative effects.

For small business owners out there today, invoice factoring may be a new practice that has become an essential tool, however, accounts receivable factoring is nothing new to the business world. Since the 80’s, invoice factoring has been a practice used by businesses to sell invoices, or accounts receivable, for a discounted price. This is especially helpful when funding new ventures or ensuring a steady cash flow that is constant and assists in avoiding shortfalls of the business owner. Bank lending and other types of institutional lending have been, for many years, in use to obtain funding for business ventures, but with the downturn of the economy, small business owners have found that invoice factoring can be much more ideal.

A Growing Need

Although invoice factoring is not a new practice, many businesses have never known about the resource, or never considered it as an ideal resource to use for business funding needs. With the economy causing many businesses to lose stability financially and with credit ratings, there are many more business owners taking a second look at the effectiveness of invoice factoring in conquering business costs and ensuring financial stability.

How it Works

 Invoice factoring is a practice in which a business owner will take all credible invoices that are due to be paid within the next 90 days, selling to the accounts receivable factoring provider for a discounted price. The cash is immediate for the business, and though a small percentage is kept as a retainer until client payment is received, the business is able to utilize a great deal of cash that is already due to them. Getting this funding without having to wait on clients to make payment is exceptional for businesses that are seeking the best method of obtaining cash without having to wait months for a denial or have credit-based loans that could cost almost double when repaid. Letting go of the responsibility of the invoices is one benefit, with instant cash being another benefit of invoice factoring to business owners that are looking for a way to stay above the economy, remaining financially firm.

Owning a business today is so risky with the many credit issues that are affecting the Nation. There isn’t just one type of business affected, but all, and getting through this crisis means finding a method to repair credit appropriately, and without getting into more debt. Repairing credit is a matter of repaying monies that are owed to creditors, and businesses can do this easily and quickly with the help of invoice factoring. Invoice factoring provides a noncredit-based funding method that will ensure that debts can be repaid without greatly affecting the business’s cash flow. Selling the business’s client invoices at a discounted price will give the business immediate funding, ensuring that monthly expenses are paid on time, and the appropriate measures can be taken to begin rebuilding credit.

The Issue

When the economy took a nosedive, consumers went with it. The consumers that were regular shoppers were no longer able to keep up a steady purchasing history, and the sporadic shoppers began to dwindle into money problems and severe budgeting efforts. This meant that many businesses were left owed money that was never repaid, and many businesses loss a great amount of business. While businesses were no longer getting the money needed to pay expenses through consumer purchase, there were loans obtained, and many other debts accrued trying to maintain a stable existence.

The Solution

With accounts receivable factoring, small businesses can reclaim a good credit standing, or even build initial credit through the use of funding that requires no repayment, and allows businesses to collect money due, before it is due. Of course, the invoices must be credible, meaning if the client doesn’t have a history or paying their bill, the factoring provider may not accept the invoice, however, if the client has a good payment history, the business can convert the money due into cash in hand at a small discount. Invoice factoring rates will differ from provider to provider, ranging from 2% to as much as 15% or more. Finding a provider that can provide low cost factoring is an optimal choice for small businesses that want to build or rebuild credit quickly and effectively.

Invoice factoring has become present in several industries, including health care. Health care facilities, including clinics, inpatient and outpatient facilities, and even hospitals, are seeking out invoice factoring providers in order to maintain a constant and stable cash flow. With many programs and health insurance companies owing these facilities money, it is becoming a bit more efficient to turn to accounts receivable factoring in order to obtain the quick cash that isn’t gained through waiting on client payments.

What Other Industries Can Benefit?

There are several other business industries that stand to benefit greatly from invoice factoring. Construction factoring is a big deal within the industry today as construction companies are well known for completing large scale tasks and seeking payment after the job has been completed. Accounts receivable factoring is available to these and other companies that often have several clients owing money at once or even small companies that offer services and often wait for payment from a third party can get a great advantage from the use of invoice factoring.

Understanding the Benefits

There are many great benefits that are gained through the use of invoice factoring. For instance, businesses are able to get the funding they most need, when they most need it, using invoices as an asset and selling for a percentage of the value. Although there is a small fee associated with factoring, the fee can be as low as 2% of the total amount due of the accounts receivable factoring. This can be a great deal better than seeking out a business loan, which will have several high fees attached and a repayment that can add up to as much as double.

Invoice factoring is a great practice for small businesses and industries that deal with delayed payment clients, ensuring that cash flow remains steady and businesses don’t have to suffer through credit-based decisions. Having the best credit isn’t really expected these days, but loan providers are just not going to take the risk of lending to those with a low score, setting some businesses at a disadvantage that is quickly overcome with invoice factoring.

Businesses usually encounter financial problems every now and then, especially those which are still starting up. These problems also likely surface when the finances of your business are not managed well. The company’s debts have to be kept under control. If you also operate more on invoices from your customers, you might experience a cash crunch. During this time, your bank accounts may have been wiped of cash.

The business has to continue operating and this can be done with the help of invoice factoring services. Your account receivables or invoices will be given to the factor and you will get cash, a percentage of the amount of your invoices. This accounts receivable factoring service is ideal for the following situations in your company:

• When you have cash flow issues

As what has been mentioned above, invoicing is just like credit wherein you might run out of cash. While you wait for those invoices’ collection dates, you have certain obligations to fulfill. A factor can give you the cash that you need to pay your dues. Usually, you can find a factor that can pay you as much as 80% as initial payment.

• When you have a failed takeover attempt or merger

After the failed merger, you might run out of cash. However, you have employee salaries and other debts that you need to pay on time. Factoring is still an effective source of quick cash for your invoices.

If you have decided to pursue this factoring solution, examine the payment plans of each factor. Read their terms and conditions to make sure that you will get a favorable arrangement.

A business that issues invoices to clients and customers would eventually need a factoring service. This is a service provided by a factor that pays cash as advance payment for your invoices.

If you operate on invoices, you need to wait about 30 to 60 days to collect on these invoices. The problem is that you might have delayed payments. An even bigger problem is that while your business continues to operate, you may run out of cash. This is a possible scenario in any business—you cannot pay your suppliers, employees, and other dues with invoices, which eat up some of your capital.

When this cash crunch happens, you need to find another source of money or else your operation might have to stop. You would not want this to happen, which is why you can turn to invoice factoring services.

There are several companies that are willing to take your invoices and pay you cash in advance at an amount that is likely 30% to 50% of your invoice amount. This is only the first payment, with the balance to be paid after the collection.

Before you can get your cash though, there are certain requirements that you need to comply with. These requirements in applying for invoice or accounts receivable services include the following:

1. Your business should involve transactions with commercial clients.
2. Your business is currently making profits in order to convince the factor to do business with you.
3. Your profit margin should be higher than 20%.

If you have all these requirements and the factor is satisfied after evaluating the invoices, you will likely be approved for an advance payment.