Can your business benefit from factoring?
Factoring, or receivables financing, is one way business owners can quickly access cash.
Consistent cash flow is often one of the most stressful issues for business owners. Every company experiences lean months when vendor invoices are due, supplies must be purchased and salaries need to be paid.
Factoring, or receivables financing, is one way business owners can quickly access cash. Companies that sell their accounts receivable to a factoring company may receive advances between 70% and 90% of the value of an invoice. Once the factoring company receives payment from your customers, you receive the balance owing minus a small set fee.
Could factoring be a solution for your cash-strapped business? Read on to learn more about the pros and cons of this type of asset-financing arrangement.
The most attractive benefit of a factoring agreement is quick access to cash. While your customer may not pay an invoice for 30, 60, 90 days or more, some factoring companies can advance funds to you within 24 hours.
Other benefits include:
Although there are pluses to factoring, it's important to be aware of these negatives:
For many businesses, factoring can get them through a cash crunch. Others use factoring regularly as a reliable method of receiving upfront cash on customer invoices. However you choose to use factoring, be sure to speak with your accountant or trusted financial advisor to get their valued opinion.