Struggle No More: Top 5 Benefits of Accounts Receivable Factoring
Obtaining financial help or assistance is also one of those areas where you need to be very careful. Especially when your business is struggling and making the wrong choice could be the deathblow to your company. Considering the different aspects of all available funding tools is essential. How does Accounts Receivable Financing stack up?
- What are rates like with Accounts Receivable Factoring? A Merchant Cash Advance (MCA) or Automated Clearing House (ACH) loan is often considered easier to get than any other type of funding, this ease comes at a cost. Capital is more expensive, in other words you’ll pay a higher interest rate, higher than conventional loans and lines of credit and most likely higher than any other alternative solution as well. Also, unlike Accounts Receivable Factoring, in a ACH loan, the Credit Company directly access your checking account in the same way automated payments might go to your mortgage lender from your personal checking account.
- How much cash is advanced? Get up to 90% advanced in as little as 24 hours. The advance rate can range from 80% to as much as 90% depending on the Industry, your customers’ credit histories and other criteria. Once they collect from your customers, the Factoring Companies pay you the reserve balance of the invoices, minus a fee for their services. So you have immediate cash in hand to operate and grow your business.
- I have credit issues, how do I get financing now? Personal credit issues are not a problem for small companies, especially start-ups, financing options are limited and the borrowers are often discouraged when they apply for a bank loan. Typically, a Business has to provide a minimum of two years of tax returns, profit-and-loss statements, and balance sheets supporting their profits. However a Business can utilize Accounts Receivable Factoring when it is burdened by weak guarantors or has a negative tangible net worth. Even if the Company has a highly leveraged balance sheet or the extension of credit terms stretches its cash resources, with Accounts Receivable Factoring there is a funding solution to put the Business back on track.
- With AR Factoring what happens if my client becomes insolvent? Although no business likes to think about it, it’s a fact of life that every day, companies go into formal insolvency. If one of these Companies is your client, it can prove extremely difficult to recover what you are owed without a credit protection in place. You will have to repay the funds your Factor has provided against their outstanding invoices.
This is where non-recourse Accounts Receivable Factoring steps in – to protect your business from insolvency. Designed to complement your Factoring facility, credit protection is an affordable solution that mitigates the impact of bad debt caused by the formal insolvency of a customer, giving you certainty of payment when things go wrong. Factoring with Credit Protection usually includes built-in credit limit analysis for all your customers. This simple step can often help to reduce the risk of bad debts in the first place.
- Can IRS liens be worked around? Working around ‘Internal Revenue Service’ problem is difficult; however, it can be done. Often the IRS could consider working out a payment plan with your Company and proceed to Subordination when you show them how Accounts Receivables Factoring will benefit your Business and increase your chances of satisfying your tax debt. The Factoring Company will be authorised to make the payments on your behalf (from factoring advances/rebates). Accounts Receivable Factoring can be a tailored solution even for Companies with tax problems.