How To Use Factoring To Finance Your Company

Financing a new and growing business can be very challenging. As most business owners know, going to the bank for business financing can be challenging. Unfortunately, banks will seldom give business loans to companies that don’t have a long track record, audited financials and substantial real assets. And banks usually don’t finance startups or very small businesses. This leaves the business owner in a bind. How can they finance their growing small business? 
Recently, factoring financing has emerged as a financing solution for companies that need to working capital. Factoring is suited for companies that sell to other businesses or to the government. As you know, one of the biggest challenges of selling to other businesses is that they usually pay their invoices in 30 - 60 days. 
Unless your company has enough cash to wait for payment, you find yourself in a bind. Soon, you’ll have to decide between paying suppliers or employees. It won’t take long before the company enters into a downward cash flow spiral. The solution to this problem is a/r factoring. Factoring provides you with an advance on your slow paying invoices, giving you the capital you need to pay employees and suppliers. This ensures that your business operates smoothly and positions you to accept new or larger orders, without having to worry about waiting 60 days to get paid.
Factoring receivables is easy to implement and can be set up in days. It works like this: 1. Your company invoices the client 2. The factoring company advances you 80% (some times more) of the invoice immediately 3. After 30 to 60 days, your client pays 4. The factoring company rebates you the remaining 20%, less their fee 

The factoring fee varies based on a number of criteria including, the quality of your customers and the amount of financing you need. Generally, rates go between 3.5% and 1.5% per month depending on these criteria. However exceptions apply. 
There are a number of advantages to working with factoring companies. For starters, factoring is easier to obtain than bank financing. The biggest requirement is that you do business with credit worthy companies. And, an invoice factoring program can be set up fairly quickly, usually in days. If you own a business that invoices large customers and need working capital to finance operations, you should consider using factoring financing.