Simply speaking, factoring or factor receivables are a way to free up your money stuck in unpaid invoices. Getting a free cash flow for your business is just like inducing it with a second life. The best way to solve any type of short term financial crunches is using the factor receivables option.
How is factoring of receivables done:
The process of factor receivables is just like selling off your claims on your debtors. When you sell goods and products for credit, you issue invoices. This type of credit is usually used to get good business and you offer usually 30 to 60 days to your clients to pay off their balance. Most companies pay you an advance of 85% as your first installment within a single working day and the remaining is paid to you after the invoice amount is realized after deducting its fees amount.
When your receivables require to be financed?
For most startup companies or even for well established companies that have exhausted their bank resources, availing factor receivables would be one of the best alternatives. Think of factor receivables as using your open invoices as an asset. Now you can determine whether or not use this option as per your need of cash in your business. Remember that lack of sufficient working capital could prevent you from making new sales, increase your competition, lose your customers, and even in time make you lose your good employees as well.
Advantages of Factoring:
- Your invoices get paid within 24 hours. This in a way means that there will be no more waiting period involved and you can easily get the money when you need it.
- It is easy to avail this opportunity. There are a large number of factoring companies ready to provide you easy cash for your invoices and it is quite a simple process to set up an account with them.
- Helps you to gain complete control over your business.
- Removes or lessens all costs associated with the collection process. Also you can avail their professional collection and credit checking services as well.
- No monthly repayments as in case of availing any loan.
- Helps you to win your battle against slow paying clients.
- Allows you to meet your urgent needs for business as well concentrate more on it rather than worry about paying off your creditors. Also paying off all bills on time helps you to improve your credit score as well.
- In many ways it helps you increase your production, marketing and sales as well. They also improve your buying power helping you to avail better discounts. At times, it could even provide necessary cash for future expansions.
- Improves your financial statement.
In case you are facing any kind of financial problems, this option helps you to ease out your cash stuck in invoices. In other words, you can get the money much before you expected and this helps you to avoid any type of financial crisis.