Factoring Financing Articles

Small businesses have been one of the biggest victims of the economic credit crunch. Some have seen their revenues go down. And almost everyone has seen their cash flow suffer. Clients that used to pay in 15 days are now paying in 30 or even 45 days. And those that used to pay in 45 days may now be paying in 60 days. The net effect of this is that cash flow weakens, and with it, the company’s ability to operate.

Although larger companies have sufficient reserves to wait for payments, few small companies do. And, due to the lack of credit, small companies usually need to pay their own bills sooner. This creates an unsustainable situation, where the end result is downsizing the company, if not closing it.

The most obvious way to solve this problem is to get a business loan. The problem, especially in today’s market, is that qualifying for business loans is very hard. Most institutions are being cautious, in part due to their own capital problems, and are only providing business financing to their prime customers. These are customers that have solid income statements, strong balance sheets and seasoned management teams. This also rules out a number of small and midsized business owners who also need the funding.

One alternative that is often overlooked is invoice factoring, a solution that is specifically designed to address slow payments from commercial clients. It helps by providing an advances for your slow paying invoices – this accelerates your cash flow enabling you to meet your obligations. You get immediate funds, while the factoring company who bought the invoice from you, waits to get paid. The transaction settles once your client actually pays the invoice. The factoring company charges you a small fee for the service.

The transaction is usually structured as a sale – where you sell your invoice to the factoring company. Because of this structure, factoring companies are more interested in the commercial credit of your clients than yours. This means that small to medium sized companies whose biggest asset is a list of solid customers can usually obtain factoring financing.

Finding the right type of business financing for your company can be a major challenge, especially in the current economic environment. Understandably so, institutions are behaving cautiously and only providing business loans to their prime clients. To qualify for a business loan, companies have to show that they have solid balance sheets, stable (or growing) income and an experienced management team. These requirements put small and medium sized companies in a competitive disadvantage since few will have the financial stability to qualify for financing, especially in today’s marketplace.

A business loan is not always the best solution to cash flow problems, especially if these are caused by slow paying clients. In most commercial transactions, clients have to pay their invoices in 15 to 30 days. However, most companies have been extending their payment terms to 45 or 60 days as a way to cope with the current credit crisis. Small businesses have been affected the most, because they can’t afford to wait 45 to 60 days to get paid. The need the funds immediately to fulfill their own obligations.

Factoring financing could be a good solution If the company’s biggest problem stems from cash flow and clients that take too long to pay. It is very different than a business loan. With factoring, a financial intermediary called a factoring company buys your invoices for an immediate payment. They wait for your client to pay the invoice and settle the transaction, while you get the benefits of the immediate funding. Most factoring companies will charge a fee for their services – usually a percentage based on the invoice.

One of the biggest advantages of working with a factoring company is the way the structure their transactions. Since they buy your invoices, their biggest concern is the credit quality of the company paying for the invoices. This allows you to leverage your client’s commercial credit and make it work to your advantage. Thanks to this structure, small companies that have a solid list of clients can usually qualify for this type of financing.

Factoring can be an ideal solution for companies that can’t afford to wait 60 days to get paid and that sell to solid commercial clients.

Most companies experience a cash flow shortage at one time or another. Unfortunately, thanks to toughening economic conditions, cash flow shortages are becoming common place. As a general rule, experts recommend that companies keep a cash cushion that is equivalent to six months worth of operating expenses available as cash in a bank account. The cash cushion can cover any variations in your cash flow and enables the company to operate efficiently.

There is a problem with this strategy, though. Few small companies can afford to have that much money tied in a bank account. Especially in the current economic environment. But without it, the company is exposed to serious problems if customers start paying late or if they face an unexpected expense.

One way to bridge any gaps in cash flow is to get business financing. Getting a business loan can be difficult and time consuming. Lending institutions have tightened their due diligence requirements and will only provide business loans to companies that have solid balance sheets, seasoned management teams and well developed growth plans. The problem with this is that few small companies have solid balance sheets. In this case, an alternative source of funding called invoice financing may be the right solution.

Invoice financing can reduce/eliminate the 30 to 60 day wait to get paid for your accounts receivable. It provides an advance payment for your invoices, smoothing out your cash flow and ensuring you are better prepared to meet your expenses and address new opportunities.

Financing your invoices is fairly simple. You work with an invoice financing company, who evaluates the quality of your account receivable and provides an advance based on those results. One important advantage of invoice financing is that the financing company considers the invoices to be strong collateral. Because of this, small companies with a solid list of clients can usually benefit from financing their invoices.

Hurry up and wait. It’s common knowledge that clients always want business owners to hurry up and delivery their services – only to have them wait 30 to 60 days before invoices are paid. Giving 30 to 60 days terms to clients can have substantial implications for small and medium sized businesses, who simply may not be able to afford to wait for payment.

Unless a company has a substantial capital reserve, waiting for payments can be very difficult. There are businesses expenses that must be met – rent, telephone and supplies. There is also payroll, one of the most important businesses expenses that must be met – on time – every time.

If you lack the funds to wait, the obvious solution is to get business financing. This is easier said than done, especially in the current market. Qualifying for a business loan can be a long tedious and uncertain process. One alternative to business loans – at least in some instances – is to get and advance on your invoices using invoice factoring.

Invoice factoring is a simple financing process that provides you with an immediate advance on your invoices. Instead of waiting for your clients to pay, a factoring company advances you funds on each qualifying invoices. The transaction is completed once your client pays the invoice in full. The factoring company charges a fee for this service, which is usually based on a percentage of the invoice gross value.

Factoring has a couple of advantages over conventional business financing. A factoring company is in effect, buying your invoice for a discount (their fee). Because of this structure, they are more interested in the credit quality of your clients than in the financial strength of your company. This makes it easier to qualify for. However, your company must be reasonably well managed and free of any liens or encumbrances. The other advantage is that qualifying for factoring is a quick process – and can usually be completed in a couple of weeks.

Although factoring is not a cure-all, it’s an innovative solution that should be considered if your company cannot afford to wait to get paid on its invoices.

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One of the side effects of the economic crisis is that more companies need business financing while less institutions were willing to provide it. Because of this, companies started looking for other options to business loans. One of the options that has gained substantial traction in the last year is invoice factoring.

Invoice factoring is a form of financing that is often offered by factoring companies. It’s ideally suited for companies that are selling goods/services on net 30 to net 60 days, but can’t afford to wait for payment. This is a common problem since most medium sized companies have immediate expenses and don’t have the necessary capital to wait for payment.

Factoring companies solve this problem by accelerating payment of your invoices. They act as an intermediary who buys your invoices and pays you for them immediately. This provides your company with the necessary cash flow to pay operating expenses and handle new orders. The factoring company, which now holds the invoice, waits for your client to pay for the invoice and settle the transaction.

A factoring company usually buys your invoice in two payments. The first payment, called the advance, is usually 80% of the invoice. The remaining 20% is called the reserve and is held to cover any invoice discrepancies and potential underpayments. Once your client pays the invoice in full, the factoring company sends the second payment, which is the 20% reserve less the factoring fee.

Factoring fees are determined by the credit quality of your clients, the volume of financing that you need, your industry and invoice diversification. They vary in range but they are usually a specific percentage of the purchased invoices.

One of the big advantages of invoice factoring is that factoring companies consider the credit quality of your invoices to be your biggest asset. This means that medium sized companies that have a solid roster of clients can usually qualify. However, to qualify for factoring your invoices need to be free of any potential encumbrances or liens.

Business owners are usually surprised that a business that has solid income can actually have serious cash flow problems. Sounds like a contradiction, but consider that income is usually booked when you invoice the client – not when they pay. And in the commercial world, clients pay on “terms” and can take 30 to 60 days to pay for their invoices. This cash flow gap can surprise many business owners and create serious problems to the company.

One way to handle the gap is to try to convince clients to pay their invoices sooner. Sometimes this works. Oftentimes, it doesn’t. Clients like to pay invoices in 30 to 60 days because it helps their own cash flow. You can be sure they will be reluctant to change their payment habits.

Another alternative is to apply for business financing. The current lending environment is difficult though, and getting a business loan will require substantial work and take time. Since most institutions are being very careful with their business loans, you can expect them to be very diligent and require a lot of documentation, such as financial and tax reports. And even if you have reasonable financial statements, there is a chance your request will be denied for other reasons.

There is a third alternative is to use a financial intermediary to get a quick payment on for your invoices. Invoice financing, as the process is called, is relatively straight forward. A financing company advances a payment against your net 30 to 60 invoices. They hold the invoice until it pays, while you get immediate use of the money. The company charges a fee, usually a percentage of the invoice, for this service.

One advantage of this form of financing is that the financing company provides you with financing based on the strength of your invoices. This enables small companies with a good list of clients to get this form of financing. Another advantage of invoice financing is that it’s easier and faster to qualify for than a small business loan.

Invoice financing can be a great solution for companies that have good clients but can’t wait 30 to 60 days to get paid for the products and services.

The number of companies looking for business financing has increased as a result of the current economic environment. Unfortunately, the number of institutions that are willing to provide business loans has decreased substantially. This has created a surplus of companies who need but can’t access to funding in their time of greatest need.

One of the biggest reasons companies need funding is because they have cash flow problems. These can stem from lowered sales and slow paying clients. As a matter of fact, slow paying clients represent a major challenge for business owners. Accustomed to paying invoices in 30 to 60 days, it’s hard to ask clients to pay invoices faster. Especially when they can take their business to competitors elsewhere at any time.

If your biggest challenge is that you can’t afford to wait for your clients to pay, and your business is otherwise doing well, invoice financing may be the right solution for you. When used correctly, invoice financing can provide the needed funding to help your business.

To use invoice financing you need to work with a funding company that acts as an financial intermediary between your client and your business. Once you invoice your client, you sell the invoice to the funding company, who pays for it immediately. This gives you the funds you need to pay expenses and grow the business. The invoice financing company, who now holds the invoice, settles the transaction once your client pays in full.

One major advantage of invoice financing is that the funding company main interest is in buying quality invoices. That means that clients with few assets other than invoices from solid clients can usually qualify for this type of funding. Also, the funding is tied to your sales, and therefore is dynamic. It will grow with your sales volume.

Invoice financing is a solution that works well for companies whose main problem is that they can’t afford to wait up to 60 days to get paid by clients.

There is nothing more frustrating to a business owner that having to turn away sales because they lack the cash flow to support them. For companies that sell products, this means not being able to replenish inventory in time to capitalize new opportunities. For companies in the service industry, this means not being able to pay the additional employees (or hours) to cover additional service requests. This problem is fairly common, especially for small and midsize businesses.

There are many things that can cause cash flow problems. The most common problem is a simple one: timing. The timing of the revenues does not match the timing of expenses. For many companies, expenses come before revenues. For example, a product supplier buys inventory (an expense), sells it on net 30 terms and then collects revenues 30 days later. Likewise, a staffing agency can place employees, who must be paid weekly but then bills the client on net 30 terms. Again, they wait 30 days before being able to collect the revenue. Unless the company has a capital reserve to operate the company and grow while waiting to be paid, it will run into problems.

The solution to this problem is fairly simple. The right business financing solution can fix it. The problem is that getting a business loan can be very difficult for small companies. They require substantial documentation and collateral. And many times, they can take a long time to close as the institutions credit committees review the cases. There is an alternative solution that can work better than a small business loan – especially if your challenge is that you cannot wait 30 to 60 days to get paid by clients. It’s called factoring financing.

Factoring is a very different than conventional business loans. With factoring, you get an advance for your outstanding invoices. This is the equivalent of a quick pay. This helps correct the timing problem between expenses and revenues and provides your business with the cash flow to support existing operations and new sales.

Most factoring companies don’t lend money, rather they buy the financial rights to your invoices. Their most important consideration is your clients’ ability to pay the invoice in a timely fashion. This makes invoice factoring accessible to companies who don’t have substantial assets but do have great clients. However, the credit quality of your invoices is not the only qualifying consideration of a factoring company. Your business must also be free of judgments, lawsuits and liens.

Factoring transactions tend to be structured as a sale with two installment payments. The first installment is usually 80% of the invoice value and is given to you as soon as the invoice is sold to the factoring company. The second installment, usually 20% less the financing fee, is given as soon as your client pays for the invoice.

Small business factoring integrates quickly into most organizations and it has a very specific scope: it is designed to solve the cash flow constrains generated the timing discrepancy between expenses and revenues.

Most companies are able to finance operations and growth by using their own funds or by having the owners make additional capital contributions. Some companies do this by choice – they dislike the idea of getting business financing. Most companies, though, do so because they have no other choice. They just cannot obtain conventional business financing.

Many companies that run into cash flow problems do so because there is a timing gap between expenses and revenues. Usually expenses are immediate, but revenues are delayed for 30 to 60 days. Revenues are usually delayed because of the common practice of offering net 30 payment terms to clients. This timing gap can affect the availability of funds for other projects or worse, may force the company to delay certain critical payments.

One possible solution is to use a business loan (or line of credit) and use it to cover expenses when available funds are low. However, business loans are usually hard to obtain and can have inflexible limits. Furthermore, the loan application process can require that you provide the institution with substantial documentation and can take a long time to close. Many times, a better solution is to use receivables factoring to accelerate your revenues.

Factoring accelerates your revenues by providing your company with an advance for your net 30/60 invoices. This provides the necessary funds to cover operating expenses. The accelerated cash flow strengthens your company’s financial position enabling you to capitalize on new opportunities.

Qualifying for accounts receivable factoring is relatively easy since the main collateral are your invoices, which are backed by the reputation of your clients. It’s also more flexible than other forms of financing since it’s dynamic and moves in parallel with your billings. This enables your financing to grow, as your company grows. Accounts receivable factoring is an ideal solution for companies in the staffing , services, manufacturing and transportation industries.

Finding the right business financing solution for a company can be a major challenge, even for seasoned professionals. Each financing solution has benefits and drawbacks and knowing which solution to deploy is critical. Deploying the wrong solution can have long term negative consequences for your company, dragging down growth.

One specific challenge stems from selling products and services to other companies on net 30 terms. This can be a problem because most companies incur a number of expenses before delivering their product or services. Waiting an additional 30 to 60 days to get paid increases the gap between spending funds and receiving revenue. This forces the company to dip into reserves to pay for operations. There is no problem with this strategy as long as the company has sufficient reserves. However, the company can get into problems very quickly if the reserves are exhausted. Interestingly, this can happen from a seemingly positive event, such as winning a large sale or project.

There is a specific business financing solution for this type of problem. It’s called accounts receivable factoring and it works by providing your company with a quick payment on your net 30 to net 60 invoices. The quick payment reduces, or eliminates, the gap between expenses and revenues. This puts your company on a solid financial footing, providing a platform for sales growth.

Qualifying for receivables factoring is usually easier than qualifying for a small business loan. Most factoring companies are more interested in the quality of your receivables than anything else since that is the collateral that secures their transaction. Thanks to this approach, small and medium sized companies with few assets other than a strong list of clients can usually qualify.

Accounts receivable factoring integrates fairly easily into most companies and works as follows. Once your company completes the work, you send a copy of the invoice to the factoring company. The factoring company gives you the first advance on the invoice which is about 80% of the face value. Once your client actually pays the invoice, the factoring company remits the second advance, which is the remaining 20% less the financing fee.

This type of financing lends itself well to certain industries. For example, staffing, security and transportation companies commonly factor receivables as a way to ensure they have funds to meet operational expenses.

Invoice factoring has been gaining popularity as an alternative to conventional business loans, especially for startup, growing and distressed companies.

Let’s examine a situation that is all too common in business. A small business lands a contract to supply products or services to a large company. It’s a solid contract that calls for ongoing deliveries and will be very profitable for your company. However, there is a small problem. Your client has asked that you give them 60 days to pay the invoices.

This puts you in a complicated situation. If you try to negotiate for a quicker payment, your client may think that your firm does not have the financial wherewithal to provide the product or service. If you agree to those terms, you have to be prepared to cover all expenses for two months. It’s a difficult choice. What’s worse, if you can’t afford to wait 60 days to get paid, your only alternative is to turn the opportunity away.

The common solution is to get business financing and use that to cover the 60 day gap. However, few conventional financing products are designed to solve this problem. A line of credit is probably a good solution. A business loan, on the other hand, may not be the best solution. Although business loans can help address this problem, they tend to be better suited to buy capital goods and equipment.

There is one solution that is specifically designed to solve this problem. It’s called invoice financing. As its name implies, invoice financing provides funding for your net 30 to net 60 invoices. This is equivalent to getting a quick payment on the invoice and enables business owners to cover business expenses without having to wait up to 60 days to get paid by clients. It provides stability to company’s cash flow, enabling the owner to better manage expenses and to better determine which opportunities to pursue.

Most invoice financing transactions are structured as a purchase, where the factoring company finances the invoice in two installments. The first installment, usually 80% of the invoice, is made as soon as you invoice your client. The finance company withholds 20% to cover any invoice discrepancies or underpayments. However, the remaining 20% less the discount, is advanced as soon as your client actually pays for the invoice.

Offering 30 day payment terms, or net 30 as it’s called, is a requirement for companies that sell goods and services to larger companies or the government. As a matter of fact, thanks to the recession, most companies are paying their invoices in 45 or as many as 60 days. Larger companies do this because it’s a source of cheap financing for them. They get use of your services and products for up to 60 days before having to pay for them.

While this arrangement is good for the larger businesses making a purchase , many small and medium sized vendors can’t afford to wait 60 days to get paid. They have their own expenses to deal with – salaries, rent and vendors. Due to this, growth will be limited to the amount of available capital. Vendors will sign on new clients until they reach the point where they can no longer afford to offer terms – and then stop growing.

One way to extend your capabilities and support growth is to get business financing. Some financial products address this problem better than others. Small business loans, for example, can be used to cover operating expenses but are not ideal as they are usually better suited for buying assets or making certain types of investments. Lines of credit offer more flexibility than a business loan in this case, but like most business loans have bank imposed maximums or limits.
Usually, a better solution is to use invoice financing. As its name implies, this solution provides you with financing based on your invoices. The financing company advances you funds against your invoices, enabling you to cover operating expenses.

By financing your invoices you can offer net 30 to net 60 terms without having to worry about waiting for payment. This provides you an important competitive benefit while improving the financial stability of your business. Invoice financing is a flexible solution as it dynamically adapts to the changes in your accounts receivable. This enables you to focus on the most important task of all – growing your company.

One of the most important features of invoice financing is that it’s easier to obtain than other forms of financing. All you need is a business that is free of liens/judgments and has a solid roster of clients who pay their invoices in 30 to 60 days.

Managing the cash flow of a growing business is a constant juggle for company managers. On the revenue side, most of your clients want to pay their invoices on 30 to 60 days. On the expense side, you have to deal with many immediate expenses that have different payment timeframes. Most pressingly, payroll, which tends to be either monthly, biweekly or weekly.

One way to improve your cash flow is to demand that your suppliers give you the same terms you offer your clients. In other words, if you give 45 days of payment terms to your clients, you want your suppliers to give you 45 or more days. This is easier said than done. Unless you own a large company or have impeccable business credit, most of your suppliers will demand quick payment.

One of the easiest ways to get into a cash flow squeeze is to have clients that pay in 60 days but have expenses that are immediate. Your only solution is to cover the gap with your company’s resources until invoices get paid. Unless you are careful managing your sales, revenues and expenditures you are bound to get into trouble and run out of resources.

One way to solve this problem is to use business financing. Although a small business loan is seen as a solution by many, they have their own challenges. They are hard to get, require extensive application processes and more importantly, require that the company and its owners have impeccable credit. An alternative to a conventional business loan is to use invoice financing.

Invoice financing eliminates the 30 to 60 days invoice payment wait, helping companies gain a more stable financial footing. It’s provides the funds you need to meet you immediate expenses, enabling you to tackle new opportunities.

One critical difference between invoice financing and other products is that invoice financing companies look at the credit worthiness of the company paying the invoice as their most important source of collateral. This feature makes invoice financing a viable alternative to small companies with thin or no credit, but a strong list of clients.

Most invoice financing transactions are arranges as an invoice purchases, where the factoring company finances/purchases the invoice in two installments. The first payment, usually 80% of the invoice, is made as soon as you submit the invoice to your customer. The remaining 20% ,less the discount, is advanced as soon as your client actually pays for the invoice.

Having a business loan application rejected can be a very heavy blow for a business. Ultimately, this may mean that the business will not be to invest for growth – or not be able to cover certain expenses. For many companies, having business financing is a requirement for growth as they need funds to be able to expand the company into new opportunities.

The two most commonly known financial products that are used to improve a company’s cash flow are conventional small business loans and lines of credit. Although these two products are the best know, they don’t always provide the best solution. If the biggest challenge your company has is that you can’t afford to wait 45 days to get paid by your commercial clients, you should look into invoice financing.

Most commercial transactions follow the same format. The product or service is delivered, along with an invoice. The client then has between 30 to 60 days to pay your invoice, depending on the terms you offer. Many companies have no alternative other than to offer payment terms simply because large companies demand it. It is a cost of doing business, though it could cost you your business if you can’t manage your cash flow properly.

One way to solve this problem is to use invoice financing. Invoice financing is a fairly straight forward product that has been gaining market traction in the past years. It eliminates the 30 to 60 days invoice payment wait, helping companies gain a more stable financial footing. One critical difference between invoice financing and other products is that invoice financing companies look at the credit worthiness of the company paying the invoice as their most important source of collateral. This feature makes invoice financing a viable alternative to small companies with thin or no credit, but a strong list of clients.

The majority of invoice financing transactions are structured as an invoice purchase, where the factoring company finances the invoice in two installments. The first payment, usually 80% of the invoice, is made as soon as you submit the invoice to your customer. The remaining 20% ,less the discount, is advanced as soon as your client actually pays for the invoice.

Financing any business in the current credit environment is extremely difficult. Banks and many financial institutions are retrenching their credit facilities, forcing companies to look for financing elsewhere. One of the business sectors that has been hit the hardest is manufacturing.

Manufacturing companies tend to be cash flow intensive businesses. They are constantly paying suppliers and employees. There are equipment, payroll, supplier and rental expenses to handle. Most managers (or owners) will do their best to keep up to date with these payments, or they risk getting their company into trouble. What usually gets cash flow into trouble is that most clients pay their invoices in 30 to 60 days. Basically, most owners need to pay suppliers before they get paid by clients. Therefore, unless the company has a cash reserve, it will run into problems.

This situation can be fixed with business financing. Unfortunately, getting a business loan is the current environment is very challenging. Business loans are simply not available to companies unless they have stellar credit and impeccable financials.

But let’s review the problem though. The issue is the timing difference between when expenses are made and when payment is received. If you accelerate the payment, the problem is solved.
How do you accelerate a payment? One way to accelerate a payment is to finance it through a factoring company. When you factor an invoice, you assign it to a factoring company who gives you an advance payment for it. This accelerated payment can be used to pay corporate expenses therefore alleviating the pressure on your cash flow. The transaction is settled once your client pays the invoice in full. Factors will charge a fee for their services, usually a percentage of the invoice.

In an invoice factoring transaction, the factoring company is buying your invoice, rather than lending your company money. Since the factoring company is buying your invoice, the commercial credit of your customer (who actually pays the invoice) is very important. Because of this, many companies with good customers can qualify for factoring financing, even if they are startups or have some financial difficulties.

Managing a company’s cash flow is one of the most important functions of a business owner during tough economic times. If done correctly, it will ensure that the business is there to thrive another day. If done incorrectly, it will jeopardize the business.

From a cash flow perspective, cash moves in only two directions. It moves in, when you make money. It moves out, when you pay expenses. Keeping this flow in balance is one of the toughest jobs in any business.

This problem is even more complex for companies that sell to other businesses or to the federal government. Large business clients usually expect to be given terms – which means that they will pay their invoices in 30 to 60 days. But as a business owner, you are usually presented with expenses that must be paid regularly. There is rent. There is payroll. And then, there are suppliers. All of which demand payment now. This difference in the timing of the flow of “cash in” and “cash out” usually creates a problem for business owners. If the business has ample cash reserves, the solution is simple. Pay the expenses now and replenish the reserves once a client pays. But what if you own a small business – or a growing business – and have no reserve? Then you must get business financing to cover the gap.

Most people think that obtaining business financing is difficult and requires a complex application process. While this is true for certain business loans, it is not true for all financial products. As a matter of fact, factoring, a product that is designed to deal specifically with cash flow problems, is fairly easy to get.

Factoring provides a simple solution. You sell your invoice to a factoring company, who advances you money for it. This reduces the time you take to get paid. The transaction is settled once your client pays the invoice in full. It’s a fairly simple concept.

As a matter of fact, you are selling the invoice to the factoring company, so usually factoring is not considered a business loan. Because of this, factoring is relatively easy to get, provided your company does not have any liens or judgments and provided your clients have good commercial credit.
Factoring financing is a little know solution that can help a company improve its cash flow and when used correctly, it can position the company for growth.

Invoice factoring is quickly becoming a mainstream business financing tool that being used by small, medium and large sized businesses. It has been gaining traction in part because banks have tightened their lending standards, leading company managers to look for business financing elsewhere.

Although most business owners are familiar with how business loans work , few are familiar with factoring. The most important thing to know about factoring is that it is designed to help companies that cannot afford to wait 30 to 60 days to get paid for their invoices. Companies that sell products to other companies or the government usually need to wait 30 to 60 days to get their invoices paid. While some companies have no problem extending 30 days terms, many do and can’t wait. Invoice factoring solves this problem by giving your company an advance for the invoice. This minimizes the amount of time you wait to get paid and provides funds to cover business expenses.

When you factor an invoice, your company actually sells the financial rights to the invoice to the factoring company. Because of this, the transaction is structured as a sale, with two payments from the factoring company. The first payment, usually referred to as the advance, is given to your company as soon as you sell the invoice. The advance is about 80 to 90% of the invoice. You get the remaining payment of 10% to 20% (less factoring fees) once your client actually pays the invoice. This second payment is usually referred to as the rebate.

One major difference between a business loan and a factoring line is that qualifying for factoring is a lot easier and quicker. Since factoring companies are usually buying the invoices they factor, their biggest concern is the credit worthiness of the company paying the invoices. Because of this, small businesses and distressed companies can usually have a good chance of getting a factoring line, provided they work with a strong roster of customers.

Costs for factoring will vary but are usually higher than the cost of a business loan. Costs are determined by the size of the line, the credit quality of the invoices, the industry and the stability of the client’s business.

Selling products and services to the US government can be a very profitable enterprise. The US government can be one of the best customers your business can get. They buy almost any product and service that exists. By law, they are structured to help small business owners succeed. And, unlike most commercial customers, they pay their invoices quickly. If you work with government projects you know that you need to treat this customer very well and be sure that you always deliver what you promised – on time and at the right cost.

So, what happens if you bid for a government contract, win it, and realize that you don’t have the capital to deliver? One alternative is to try and go to an institution to get business financing. Many institutions will provide a business loan (or similar financing) to government contractors. But as you know, qualifying for business loans can be very difficult, especially for startups. Institutions will review your business plan, along with your company’s financial statements, management team and track record. Because of this, many startup companies find that obtaining financing can be very challenging.

This problem is particularly challenging for product re-sellers. Most product re-sellers that work with the government need to pay their suppliers before they get paid by the government. Because of this, they can only compete for certain bids since their capital limits the size of the projects that they can pursue. Some resellers are able to negotiate better terms with their suppliers, basically enabling them to wait until the government pays them first.

There are two other alternatives that can help you grow. They are invoice factoring and purchase order financing. Both are alternative sources of financing and can be ideal for government suppliers.

Let’s looks at two examples to see how invoice factoring and purchase order financing can help your company grow. Let’s say that you have a government purchase order that you have completed and will get paid in 30 days. Let’s also say that your supplier needs to be paid in 10 days. The problem could easily be fixed if you could get an advance payment on your government invoice. That is exactly what accounts receivable factoring can do for you. It provides you with an advance on your invoice that enables you to pay your supplier on time. This enables you to maximize the use of your supplier’s payment terms to your advantage, helping you grow your company.

Now let’s look at a more complex problem. Let’s assume that you won a government contract that is substantial and you have a supplier that is demanding an advance payment before shipping the goods. This situation is very common for startups because few of them have any type of supplier credit. In this case, the solution is to use po financing. PO funding helps you pay your supplier so that the government order can be fulfilled. The transaction is then settled once the government receives the goods and pays for them.

Both receivables factoring and po funding are available to both new companies and established companies. Both are relatively easy to obtain and can be set up relatively quickly. This makes it an ideal solution for growing companies.

For many years, companies have relied on venture capital financing to grow and expand their businesses. Recently, most venture funds have been reduced in scope and size to deal with the current economic environment. Unfortunately, this has had a substantial effect in the broader economy by limiting entrepreneurship and innovation – key component of economic success.

Without venture capital, many business owners try to finance their companies by looking for a business loan from a lending institution. However, business loans are only given to companies that have strong collateral and can show profitable operations. Companies will also need to provide financial statements that will be rigorously reviewed to ensure that they meet institutional criteria. Because of this, this type of business financing is out of the reach of many business owners, especially at this time.

There is are alternative ways to finance your company. They can help you expand your company organically without generating any new debt. And more importantly, without having to give any equity in the business to someone else. Remember that when you use venture funding, you are selling a piece of your company to someone else. They will want a say on how things are done. Many times this is good, since venture capitalists usually have seasoned executives that can help you. However, it will take some of your independence away.

There are two alternatives that can help you, depending on your situation and line of business. One if factoring financing. Factoring bridges the 30 to 60 day gap between invoicing a commercial customer and actually receiving a payment. This advance payment enhances your cash flow, providing you with funds to pay current expenses and grow the business. The other alternative is to use purchase order financing. PO Financing only helps product resellers who have a large order and don’t have the funds to buy the product from their supplier. In both factoring and purchase order financing, the transaction is settled once the customer pays the invoice. And as opposed to other types of financing, the most important collateral if your customers credit rating. Thus, you can leverage your clients credit rating to fund operation expenses and growth. This makes factoring and purchase order financing an ideal solution for many businesses.

Finding financing has always been relatively easy for established companies, provided that they have a track record of success. Most companies that have sales in the range of a million dollars per month can find financing from either their local bank or from other institutions. It’s a different story if your company is smaller though.

Everyone agrees that having the right capital structure with the right sources of financing is critical for the success of a company. The problem is that few institutions are willing to make a business loan or offer any type of business financing to small companies. Large institutions don’t like to lend to small businesses because they find them risky. In part they are right, small businesses have a high failure rate. On the other hand, a small business has a very low chance of succeeding unless they find appropriate funding.

Most business owners will try conventional sources of financing at first. And some will actually succeed in getting business loans or similar financing from their local institutions. But like all small business owners, they will need to show an established track record of success and will need to have substantial assets to back up the financing request. However, if conventional sources fail, few business owners know where else to go for financing.

One possible alternative is to use invoice factoring. One common challenge for small companies is working with commercial and government clients that pay in 30 to 60 days. This practice of offering terms usually ends up tying the company’s capital, restricting their ability to pay vendors or employees. This also restricts their ability to pursue new clients, since they lack the capital to service those accounts. Factoring invoices eliminates this problem by advancing you funds against your invoices. Instead of waiting for your client to pay – you can have the factoring company advance you the funds (less a discount). These funds can be used to pay existing obligations or be invested in new projects or clients.

A major advantage of a using accounts receivable factoring is that most company owners can obtain it relatively easily. To qualify, companies need to have a solid roster of commercial or government customers. Companies also need to be free of major issues – or if they have problems – they need to have a turnaround plan in place.

The reason accounts receivable factoring is easier to obtain than other sources of financing is that they look at your invoices from customers as their main collateral. This allows companies that have a solid base of clients to use that as leverage to fund operations and growth.

Capital rationing is an all too common problem in the current economic environment. Simply stated capital rationing occurs when you have more profitable projects than funds to implement them. Because of this, firms must ration (or limit) their expenditures and only do the most profitable ones – those that have the best internal rate of return or highest net present value. However, capital rationing may also prevent you from launching profitable projects, limiting the scope of your business.

At a much simpler level, it means that you are not making as many sales as you could. Let’s say that you have $50,000 and have two sales opportunities. Each sale opportunity requires a $50,000 investment to buy supplies and deliver the service. Sale opportunity #1 has a return of 15%. Sale opportunity #2 has a return of 20%. Logically, you choose sale #2. But what if sale #1 is still profitable for you? Wouldn’t it be great if you could also pursue that project? Well, you can’t because you lack funds. You have to ration your capital and can only pursue one opportunity. This can be painful for business owners that are forced to turn sales away.

One obvious solution to the capital rationing problem is to get business financing. That is easier said than done, especially in the current economic environment. Both business loans and lines of credit can be used to deal with capital rationing but can be difficult to obtain, especially for small and midsized companies. Qualifying for a business loan usually complicated and requires that a company be profitable for a number of years. Usually, most banks and institutions will also require substantial collateral before providing a business loan.

One alternative is to use factoring financing. Most companies have to wait 30 to 60 days before their invoices are paid by commercial clients. This has a negative effect on cash flow and many times affects a company’s ability to take on new projects. Invoice factoring provides an advance on your slow paying invoices, eliminating the payment wait. This accelerated payment enhances cash flow, providing funds that can be deployed to start new projects.

Whether factoring can help with your capital rationing problem is a complex question that varies based on each opportunity. However for many companies, especially those that are payroll intensive (e.g. staffing companies), factoring financing can provide to be the right solution to finance growth.

Getting any type of business financing has been incredibly challenging for business owners. One of the market segments that has been most affected by this are middle sized companies. Although bigger than their small company counterparts, they are usually not big enough to qualify for the business financing options that are available to larger companies. But without financing, most will never grow or flourish.

One alternative is to go the conventional route and try to get a business loan (or a line of credit) from a bank or a lending institution. However, credit requirements have been tighten substantially and few businesses are able to qualify for any type of financing. And those that do must be ready to provide and substantiate a long standing track record of profitability. Additionally, both companies and business owners can expect to put more collateral than previously required to secure the loan. Although conventional business financing may be out of reach for some companies for the time being, there are other options that can be used to finance their growth.

One alternative is to use invoice factoring. This type of financing is ideal for companies that have clients that pay in 30 to 60 days, but needs the funds sooner. Factoring helps businesses that need to convert invoices into cash to meet payroll or start new projects. One advantage of factoring over other alternatives is that factoring companies are most interested in the strength of your invoices, as that represents a company’s best collateral. So a midsize company that has no other collateral than invoices from strong clients can usually qualify. Companies that usually benefit from this type of financing are labor intensive businesses, such as staffing agencies, and consulting companies among others.

But factoring can’t always help every company. Consider this example. Suppose a product reseller, gets a large order from a retailer. The reseller needs funds to buy the product from their supplier (or manufacturer), in order to fulfill the purchase order. One good alternative is to use purchase order financing. Purchase order funding can provide the funds to pay the supplier, enabling them to fulfill the order. The transaction is settled once the retailer pays for the goods. Qualifying for purchase order funding is harder than qualifying for invoice factoring. To qualify, the transaction must have a minimum of 20% gross margins and the client must buy the finished goods from their supplier.

Although not widely used yet, these business financing alternatives have been gaining traction in the current economy. They enable mid size businesses to grow by allowing them to leverage on their most important assets – the purchase orders and invoices from their customer base.

The number of troubled businesses has increased dramatically as a result of the current economic environment. Usually, the problems start when clients start delaying payments. This has a negative impact on cash flow, and if your company does not have a working capital reserve, it can create major problems. The first reaction for most owners tends to be to delay vendor payments as well. That seldom works as a long term solution unfortunately. Before long, like falling dominos, other payments start getting delay and the company gets into deeper trouble.

Most company owners look for business financing – hoping to implement a stop gap solution to the working capital problem. Unfortunately, getting a business loan is very hard for companies that are not in pristine financial condition. The catch 22 is that if the company where in pristine financial condition, it would probably not need a business loan. Most of time times, this situation can be fixed with the right financing. Otherwise, the company risks going out of business.

There is a solution that can help companies who face slow paying clients and who are not in the best financial shape. It solves this particular problem at its source – the slow client payments. The solution is called invoice factoring.

Factoring provides you with a funding advance for your slow paying invoices. It provides you the capital you need to pay suppliers, vendors and employees – on time. The fact is that while your clients are paying invoices more slowly, most of them are still good solid clients. Factoring companies can provide you an advance on your invoices because they consider them to be your best collateral – something most institutional lenders don’t always do. Because of this, invoice factoring can be a good solution for a troubled company that still has a solid roster of clients.

Another advantage of factoring is that is a dynamic form of financing that grows with your business. Since financing is tied to your invoices, it can be used to grow your business and restore its financial health.

There is something interesting about recessions. Although nobody likes them, many times they provide growth opportunities to businesses. Through careful planning and solid execution, many business owners are able to increase their market share and grow their companies. The catch is that more often than not – they need business financing.

Getting a business loan, or any type of business financing, has been a challenge in the current economic client. Institutions are not lending, either because they lack the funds themselves or because they don’t trust their client’s collateral. Institutions themselves must also follow tough guidelines regarding what they can finance or not. Does that mean that you are out of options? Not really, it just means that you need to know where to look.

One business financing option that has been overlooked in the past few years is invoice factoring. Invoice factoring is a bit different than other forms of financing. It helps companies that have commercial or government clients and that have to wait 30 to 60 days to get paid for their invoices. While many companies can afford to wait to get paid, few realize the true cost of waiting, also called the opportunity cost.

Factoring invoices provides working capital, using the soon-to-be-paid invoices as collateral. Invoices from large or medium sized companies tend to be good collateral that can be financed, and that is where factoring comes in.

What makes factoring financing appealing to companies is that is relatively easy to obtain. The most important requirement is that you do business with solid customers. This product is usually offered by private finance companies called factoring companies, though some banks offer it as well.

Factoring is a tool that can be used to grow your business when other types of financing are hard to obtain or out of reach. It has the added advantage that it grows with your sales, providing your company with a dynamic form of financing.

As a result of the current credit environment, finding the necessary business financing to grow their companies has become the full time job of many CEO’s, CFO’s and company owners. For example, venture capital has become increasingly difficult to get – and understandably so. Some venture capitalists are being extremely cautious, while others just have their own financial problems and are not in a position to finance other companies. Other institutions are not too helpful either. For example, getting a business loan has become increasingly more difficult, and in some instances, impossible to obtain. Many institutions require audited financial statements, proof of hard assets, excellent credit among other things before issuing a business loan. Unfortunately, this puts business loans out of the reach of many businesses – especially those that don’t have collateral in the traditional sense of the word. There is a possible solution though.

Some businesses may be able to use accounts receivable factoring to fund their growth. One of the biggest challenges for companies that have commercial sales is having to wait 30 to 60 days to get paid. This also applies to government contractors and suppliers who must also wait to get paid. Many companies would not need a business loan or venture capital to finance their growth, if their clients paid quickly. You can achieve this using accounts receivable factoring. This form of financing has a number of advantages over other forms of financing. By factoring receivables you can get working capital for your company without while minimizing the problems – and hassles – of waiting 30 to 60 days to get paid.

Getting a receivables factoring financing line is fairly simple, since the main qualification criteria is that you do business with credit worthy clients. But more importantly, accounts receivable factoring is dynamic, and grows (almost automatically) with your sales. This makes it an ideal solution for companies that are growing and have solid prospect – but are having challenges finding a financial partner to back their business.

Funding a business in the current environment has been a challenge for company owners. The business financing environment has not been friendly business owners, in part because many funding companies had problems of their own. Because of this, they have tightened their commitment requirements.

Some companies have tried a different approach and opted to look for business loans. Unfortunately, trying to get a business loan in the current environment is also very difficult. Most institutions are being very cautious and only lending money to companies that meet very strict criteria. For example, you may need to show that they have been profitable for a number of years, have seasoned managers, include audited financial statements and have other assets. This puts business loans out of the reach of most businesses, at least at this time. So, is there an alternative? In fact, there is.

If your company has commercial or government clients, you may want to consider accounts receivable factoring. Most companies with commercial or government clients share the common problem of having to wait up to 60 days to get their invoices paid. Waiting this long will certainly impact your cash flow, especially if your company does not have substantial cash reserves. Factoring your invoices provides you with a solution to this problem. It provides capital to cover your business expenses without having to wait for your customers to pay you. It also enables you to take on new clients, as you no longer have to worry about net 30 or net 60 day payments.

There are several advantages to using accounts receivable factoring. The most important one is that it is easy to obtain, since the most important qualification criteria is that you have solid customers. Aside from that, it offers a dynamic form of financing. Dynamic financing lines adapt to your sales volume, and increase as your sales increase. This makes receivable factoring a great solution for growing companies that need different levels of financing as their business grows.

Accounts receivable financing can be a great alternative way to finance your company, especially in a tough credit environment.

Are you looking for a business loan? Many business owners who need business financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.

In certain instances, invoice factoring may be a better and easier to obtain alternative. There are three conditions that can determine whether factoring is a better alternative than a business loan:

1. Are your clients’ slow payments hurting you? Do they take up to 60 days to pay?
2. Are you turning away bigger sales because you lack working capital?
3. With the right financing, does your business have significant growth potential?

If you answered yes to these questions, then chances are that factoring your invoices will be better for you than more traditional business financing products. Invoice factoring provides you with financing based on your invoices, eliminating slow payment cycles and providing you with money to pay rent, meet payroll and expand your business.

Since factoring is tied to your sales potential, it does not have the arbitrary use limits that business loans have. The more your business grows, the more financing you qualify for. Period. This makes it an ideal product for businesses that have significant growth potential.

Factoring (or receivable factoring as it is also known) is easy to use. Once you have invoiced your customers you send a copy of the invoice to the factoring company. The factoring company, in turn, advances you up to 90% of your invoice and waits to be paid by your client. Once your client pays the invoice, the transaction is settled.

In effect, by financing your invoices you eliminate the slow payment problem. You accelerate your cash flow, enabling you to pay your obligations, take new opportunities and grow your company.

In terms of cost, factoring is a very competitive product. Factoring fees range from 1.5% to 3% per month, making it an affordable product. If you own a business that is growing and you need financing, be sure to consider invoice factoring.

If you own a business and your clients take up to 60 days to pay your invoices, you may want to consider invoice factoring. Invoice factoring eliminates the payment wait and gets your invoices paid in a couple of days. This gives you the necessary financing to pay ongoing expenses such as suppliers, salaries and rent.

But invoice factoring is different from most traditional financing. For starters, it is not a business loan, but rather, a sale of invoices. Although it may not be clear at first sight, you can finance your business by selling your invoices.

Basically, when you factor your invoices, you sell them to a factoring company, who pays you for them. When the factor buys your invoices, it’s common that they’ll pay you in two installments. The first installment, called the advance, is provided as soon as you sell the invoice. The second installment, called the rebate, is provided once your client pays for the goods/services.

Lets look at a factoring transaction to see how it works:

1. You deliver goods and services to the customer.
2. You invoice the client
3. You sell the invoice to the factoring company
4. Factoring company advances (installment #1) between 70% and 95% of the invoice
5. You get immediate money for your business
6. The customer pays the factoring company
7. The factoring company rebates you (installment #2) the remaining money, less a small fee

As you can see, the sale of your invoices provides you with accelerated funds that can be used to run and grow the business. Although factoring is a great tool, it only works to solve one very specific problem. That is, that you can’t afford to wait to get paid by your clients. However, it solves this problem better that most other financial tools. Furthermore, as opposed to bank financing, invoice factoring is easy to obtain and can usually be set up in days.

Do you have clients that take 30, 50 or 60 days to pay their invoices? Although having slow paying clients is expected in today’s business environment, they make managing cash flow a very difficult task. Paying suppliers, salaries and rent becomes a challenge.

However, there is a way to solve this problem. The solution involves factoring your invoices.

Factoring is a financing tool that allows you to get your invoices paid in as little as 2 days. It provides your company with the necessary capital to operate the business, pay suppliers and grow. However, factoring is not a business loan. Rather, factoring involves selling your invoices at a discount for immediate cash. The factoring company waits to get paid, while you get immediate use of the funds.

Factoring can easily be integrated to any business and works as follows:

1. You deliver goods or services and invoice for them
2. You sell the invoice to the factor. They give you the first installment of 70% to 90% of your invoice. This is called the advance.
3. You get immediate funds to run your business
4. Once the customer pays the factoring company, you get the second installment (of 10% to 30%) and are charged a small fee for the transaction. This is called the rebate

Although factoring costs vary and are based on transaction size and timing, the average cost of a transaction is usually between 1.5% to 3% of the invoice per month.

One major advantage of factoring is that it is easier to obtain than a business loan. Furthermore, the factoring line can be set up in about a week, and the biggest requirement for approval is that do you business with credit worthy clients.

This has to be one of the toughest times to get any type of business financing in recent history. Although the credit markets are improving and some institutions are starting to lend money, few startups are getting loans as institutions prefer to focus on businesses that have a track record. But even existing businesses are having a hard time obtaining financing. For the most part, institutions will ask for two years worth of financial records, including tax returns. And unless your business can show profitability and excellent growth prospects, chances are that your business loan may get delayed or denied. And if your records show any blemishes – your chances of getting a small business loan will be very low. Basically, institutions are only making business loans to their most promising prospects. But that leaves many businesses that have good potential out of the picture. Fortunately, there are some alternatives.

If your company sells to commercial to government clients, you are probably familiar with having to sell on terms or net 30 days. Basically, it means that you deliver your product or service today but have to wait 30 to 60 days to get paid for it. In the meantime, you still have to cover operating expenses and must continue to pay suppliers and employees until you get paid. This creates a problem for many companies for two reasons. Few companies have enough capital to wait two months to get paid. But more importantly, many companies are rejecting large orders or projects simply because they can’t afford to pay everyone else while waiting to get paid. One solutions to this problem is to use invoice financing.

Invoice financing provides a simple approach to financing your business. It eliminates waiting 30 to 60 days to get paid by providing you with an advance against your invoice. This provides you with capital to operate your business, while you wait for your customer to pay. Once your customer pays, the transaction is settled. As opposed to conventional business loans, invoice financing programs can be approved quickly and put in place in days. Invoice financing is also dynamic since your funding grows as your sales grow. This makes is an ideal solution for certain types of businesses.