Factoring Receivables - A Tool To Finance Your Growing Company

 If you sell goods/services to other businesses or to the government, then you know that commonly you have to wait 30 to 60 days to get paid for your services. Unless your business is well capitalized, waiting to get paid can drain your working capital and affect your business. Lack of working capital can prevent you from making new sales, forcing you to sentd customers to your competition. What is worse, if the problem is not corrected, it can affect you ability to pay employees or suppliers. Missing payroll and supplier payments is a sure indication that a business is in serious financial troubles. The solution to this problem is, of course, simple. You just need to get business financing. Obtaining business financing (such as a line of credit or business loan) is easier said than done. If you go to a bank, they will require that you provide them with three years audited financials and a solid business plan. That kills any chances of financing for most startups and new businesses. 

There is, however, an alternative form of financing that can help you get working capital. And, it almost always works better than a business loan. It is calledfactoring financing. Invoice factoring provides your business with a substantial advance on your slow paying invoices – sometimes up to 85% of what you have invoiced. You can use the advance as working capital to cover new sales orders, payroll or supplier payments. Factoring receivables provides you with relief form slow payments and provides you with the working capital you need to grow. Factoring receivables is simple to use and works as follows:

1. You provide the product/service to your client and send an invoice to them

2. You send a copy of the invoice to the factoring company

3. The factoring company advances you up to 85%. This is your first installment

4. Once your client pays, the remaining 15% (second installment) is advanced, less a small service fee

The fee you pay will be based on the sales volume that you finance and the credit quality of your clients. Fees can generally range from 1.5% to 3.5% per month. On of the big advantages of factoring receivables is that it is easy to obtain and can be set up in a few days. Most new and established businesses can qualify easily. The biggest requirement to qualify is that you must do business with reputable clients or government entities.