Small Business Factoring - The Solution To Cash Flow Shortfalls

Small business factoring has always been the available bridge for business owners in need of working capital when credit is unavailable from traditional lending institutions. As a business owner, it is understood daily operations cost money and in order to keep the operation moving smoothly and productively, it is critical to have funds available to meet immediate cash needs.

If funds are unavailable to meet these needs, business grinds to a halt along with revenue and growth. For those businesses that are less then two years old or for some reason or another can’t get a line of credit from the local bank, factoring offers a solution to meet immediate cash flow needs with cash available in many cases the same day. Keep reading and learn how small business factoring may possibly be the solution you’ve been seeking to meet your cash flow needs.

Known primarily has invoice factoring, it is the sale of a business’s outstanding invoices or accounts receivable minus a discount for immediate cash from a factoring company. That is the quick answer although we will get into more detail. Do not confuse factoring with credit. The factoring company is not issuing credit to the small business, in fact, the small business never pays a cent to the factoring company other than the discount on the total amount of the invoice or invoices. Factoring companies do not operate like traditional banks, meaning they do not use your business assets as collateral for extending credit. The factoring company purchases your outstanding invoices outright with no debt incurred by the business owner.

The Solution To Immediate Cash Needs

Cash flow. Small business requires an unobstructed flow of cash to meet daily operating needs. Ideally, the proceeds from outstanding invoices when paid in both a timely manner(generally 30 days) and in full, small business’s can operate without cash flow problems. However, as a business owner you know many times invoices are not paid in thirty days. Payment can sometimes take as long as 45, 60 or even 90 days which hinders cash flow resulting in a breakdown of productivity, your accounts payable and of most of all, revenue.

A factoring company can supply your business with immediate cash based solely on your accounts receivable and not business credit standing, like a traditional bank. In other words, the factoring company relies on the strength of your customer base rather than your company credit. Factoring companies evaluate your invoices and once approved, will turn over the funds less the discount agreed upon, giving you the needed cash to sustain business operations.

Small Business Factoring Benefits

Once your invoices are approved, the factoring company will pay you minus the discount.

Growth of your business is encouraged since available working capital allows for further growth.

No debt is incurred by the small business.

Flexibility - The business owner can pick and choose which invoices to factor and which one not to factor.

Selling invoices to a factoring company is the same as offering a discount to your customers to pay early.

Small Business Factoring Summary

Factoring companies have always been an available source of immediate cash for small businesses when credit is unavailable through traditional means. With the current economy and all of the political and financial rhetoric, banks are still not lending money. Small business factoring offers a viable and debt-free way to obtain working capital to continue growth and increase revenue.