Why Consider Small Business Factoring?
In Business, everyone has creditors and debtors. If you are a Small Business owner, your largest debtor is represented in your accounting books as accounts receivables. The total of your Accounts Receivables is the expected collections from your debtors.
Each time you send out an Invoice to a customer it is entered into your Accounts Receivable ledger. Accounts Receivable is an asset, but unlike most assets, you can not refinance it like you would a piece of machinery which is also an asset. Most traditional lenders will not lend against your Accounts Receivable. This is where Small Business Factoring Companies come in to play.
Invoice Discounting, Invoice Factoring, AR Factoring among many other terms are generally interchangeable with the term Small Business Factoring. When using this kind of Commercial Finance, the company offering the Accounts Receivable as security would receive a predetermined advance rate based on the face value of the Invoices presented for factoring. Although it does vary from Commercial Lender to Commercial Lender, the average advance rate is approximately 85% of the Invoice face value.
Once you enter into an agreement with a Small Business Factoring Company, the Factoring Lender will now take over the rights to collect the debt amount from your debtors. Thus your debtors would be informed to pay the Factoring Company directly on behalf of your company. This works out to be a win-win situation for you and the Factoring Company.
What are the advantages of Small Business Factoring for your business?
1. Cashflow Increased: With an available Cashflow, your company will be able to pay bills and meet payroll without having to worry about having sufficient funds.
2. Predictable source of funding for your business: You will not be forced to wait for 30 to 90 days to collect on your sales; you will have funding available to you within 48 hours of generating your invoices.
3. Small Business Factoring is less cumbersome than traditional bank financing: Many bank programs require monthly reporting to the bank. Factoring Companies are generally not interested in you doing monthly reporting, they will often do the reporting for your in regards to your sales generated on a monthly basis.
4 Less strings to deal with. Again, as we all know, banks will tie up everything in value when they lend you a little money. Small Business Factoring companies will have far less rules and covenants to deal with in general.
Now that you have seen some of the advantages of Small Business Factoring it is time to speak with your Commercial Finance Broker to see which programs fit your company the bestBest of all, most Commercial Finance Brokers are set up with the Small Business Factoring companies and they pay your broker, not you!
