Do you have clients that take up to 90 days to pay their invoices? Read this article to learn how receivables factoring is a tool that can fix this issue.
Do your clients take 30, 60 or even 90 days to pay their invoices? Extending payment terms, as it is commonly known, is very common in the business world. Customers demand that they be given credit, in the meantime you still have to pay for your company’s ongoing expenses. This can be a problem for companies of all sizes – from large established concerns to small startups. Unless you have enough cash to pay for business expenses – rent, salaries and suppliers – while you wait to get paid - your company is bound to run into problems. You may have to avoid taking large orders to conserve cash. Or worse, you may have to delay payments to employees or key suppliers.
Is the solution to get a business loan from the bank? Hardly. Banks only lend to companies that can provide detailed financials and show profitable operations for many years. If you get a loan, it will be for a fixed amount. If you need additional funds, you’ll need to go through the process one more time. And worse, getting a business loan takes a very long time. A better solution is accounts receivable factoring.
Receivable factoring eliminates having to wait for customers to pay you – and provides you with the funds you need to meet business expenses. Furthermore, it’s easier and quicker to obtain than a bank loan. How does receivables factoring work? Simple. The factoring company gives you an advance on your accounts receivable. The advance ranges from 70% to 90% depending on industry and the types of clients you work with. This advance allows you to meet ongoing business expenses without having to wait for your clients to pay. The transaction is settled as soon as your client pays the open invoice.
Factoring receivables is also a cost effective solution. Factoring rates are usually determined based on the amount of financing you receive and on the payment reliability of your customers. The cost will be anywhere between 1.5% to 3.5% per month based on these criteria. As opposed to other financing tools, factoring invoices is convenient and easy to obtain. Furthermore, it is usually more flexible than other financing tools since your financing line is based exclusively on your sales. That means, that your financing grows with your sales, making factoring a true tool for growth.
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