Getting Capital From Your Invoices
Every company needs cash to sustain itself or it will cease to exist. If your business receives its revenue on an irregular basis because of seasonal cycles, you may be finding yourself short of funds from time to time. To make it through those times, you may have to apply for a bank loan, which might not work out the way you want it to. An alternative to bank loans would be to utilize accounts receivable funding to get the money you need to run your business.
A growing number of businesses are turning to factoring to get a much-needed cash boost when their monthly sales figures have temporarily declined. Factoring is the process of selling accounts receivable accounts or invoices to a funding company, also known as a factor. This company will verify your invoices and give you an advance of 80 to 90 percent of their face value. When payment is made on those invoices, the factor will give you the remaining balance less a service fee. The money that you get from the factor can be used for payroll, to buy equipment, pay bills, or any other business expense. Accounts receivable funding can be a reliable way of getting money when you need it.
If you’re still not convinced that selling invoices can solve your cash flow problems, there are several benefits that you may not be aware of. To begin with, you don’t need good credit like you would for a bank loan. The funding company will be looking at how credit-worthy your customers are. Since factoring is not a loan, it’s the selling of an existing invoice, you won’t be stuck with more debt or have to add it to your balance sheet. No one tells you what to do with the money; you can use it any way you want to. Unlike bank loans, accounts receivable funding doesn’t take several weeks to be completed. Once your company has its factoring account set up, you can get your money in a matter of days.
To begin the process of factoring, a telephone conversation or online inquiry between you and the funding company will determine if there is a good fit. If there is, the next step is to complete an application. In addition to the application, you will have to supply an accounts receivable aging report, last year’s tax return, proof of your company’s legal entity, and a sample invoice.
The selling of invoices has been around for a long time and has seen many companies through hard times. Without accounts receivable funding, those businesses may have had to permanently close their doors. Factoring has become the cash flow solution that everyone has been looking for.