You might be thinking, ‘are you crazy? Where can I find cash within my business?’ Take a look at your books, specifically your accounts receivables. Would having 80 percent of that balance today put your business back in good standing? Then invoice factoring is the solution to your business’s cash flow needs.

Factoring is effectively the sale of an asset. Accounts receivables are simply a future cash flow that a factoring company will purchase at a discounted rate. In exchange for this discount, the business receives immediate cash flow for use in their business. As well the factoring company will assume the invoice as there own and thus will provide accounting and collections services, as well as a package of other benefits.

Because factoring is the sale of an asset, it creates no new debt. This is apposed the business credit lines and loan arrangements that create a liability. The factoring company gets paid back by your customer which means there is no added liability for your business.

Another key characteristic of factoring that it provides fast access to capital. Banks have to go through many processes ensure that their clients are credit worthy before they approve a loan. Factoring companies require due diligence as well, but their process is much more streamlined and they can usually disburse funds 24 to 48 hours from the time of application. This means that your cash flow worries can be over ASAP and business can keep running as usual.

Need Financing? Look at your books is a post from: Factor Direct Capital

With the current uncertainty, managing business risk is of utmost importance. Survival is the name of the game right now and adding operational expenses is only for the ultra-confident or extreme risk-takers. This is why it is a great time to consider factoring as opposed to bank loans to finance operations. Bank loans create a liability that adds to operational expenses. This fixed obligation could become a burden when cash flow gets tight, thus it creates financial risk. Factoring, on the other hand, creates no new debt and thus no new financial risk. On the contrary, factoring is more akin to the sale of an asset. You ‘sell’ all, or a percentage of your receivables and receive cash for business operations immediately. I say ‘sell’ because factoring is technically an assignment; a factor buys the rights for a payment on a receivable. This means the customer bears the obligation to make good on the receivable, while you use the money for day-to-day operations. This means that factoring creates no new financial obligation and thus no new financial risk.

Factoring is also good for this uncertain economic climate as it is a very flexible financial arrangement. Because factoring amounts to a short term cash advance, it is easy to adjust the amount of financing needed at any given time. If the economic climate changes, factoring can be cut-off or increased depending on what is best for the new situation. The same cannot be said for a standard bank loan; businesses are locked into terms no matter what happens with the economy. Using factoring in this uncertain climate is a good way to stay aggressive but still hedge your bet.

Factoring can actually help reduce certain risks a business is exposed to, specifically the risk of non-payment from a customer. This is because factoring companies run credit checks on all of their client’s customers. This provides valuable insight on the financial position your customers are in. Offering trade credit to businesses that are not credit worthy is a very risky proposition which becomes all the more risky if the economy gets worse. Factoring can provide the information to make informed decisions that will help manage risk exposure.

Factoring and Business Risk is a post from: Factor Direct Capital