Factoring financing is one very good way for companies to improve their cash flow. It allows them to do so without taking on new debt and without having to wait months for their customers to pay their invoices. Instead, they leverage their invoices to generate immediate capital. Factoring financing has been available for some time. However, recently more companies are considering it because they have far fewer financing options then in the past.
With the current sustained recession, companies are finding it much more difficult to stay in business and to raise money to cover expenses and fund growth. Banks are simply refusing to loan out enough money to meet the demand. As a result, businesses are being forced to shut down or find other ways to get the money they need. This is a difficult transition for the business community and is requiring a change in schema. For many years, debt was the preferred and recommended method of generating capital for businesses, new and established. Now because that particular source has essentially dried up, companies must develop new ways to do business. One of those ways is factoring financing.
Factoring financing can remedy a company’s cash flow problem by providing them with the money they need right away. In fact, it is possible for a business to generate money in as little as 24 hours. This can be accomplished even by new companies and those with bad credit.
For those unfamiliar with the concept, I will provide an example of how this process works. Company WeRAwesome is in trouble financially. They have employees to pay and supplies to purchase but no cash on hand. They need to generate $400,000 fast. What the company does have going for them do is $700,000 of invoices due from customers with good credit. They decide to sell the invoices to a Factor, Paragon Financial Group, who agrees to purchase them for 90% of their value or $630,000. Now, WeRAwesome has the $400,000 they need plus much more. Paragon Financial Group will handle all of the collections on the invoice and return the money to WeRAwesome, minus fees and the money they already paid them. Problem solved!
The above, was an example of how factoring financing works. It allows businesses to leverage their accounts receivables for nearly instant cash. Instead of waiting 30 to 90 days, the average length of time an invoice is repaid, to receive the monies owed to them, it is possible to get it in mere days. This makes it an ideal option for companies that need money right away and who can’t afford to wait. It is also a great alternative to bank financing, which simply isn’t available to newer businesses and those with bad credit. In summary, invoice factoring is a very good small business financing option.