How Machine Shops Can Improve Cash Flow With Invoice Factoring
A machine shop can improve their cash flow with invoice factoring. Invoice factoring is becoming an increasingly popular way for businesses of all types to generate capital fast. With the current recession, traditional financing options are becoming more difficult to utilize.
For example, it is harder than ever to qualify for a bank loan. Even those businesses with decent credit and that have been around for many years, are finding it challenging to receive money from banks. In order to stay afloat, businesses have to be willing to consider financing options that they wouldn’t in the past or which they never knew existed. Invoice factoring is one of those options.
Machine shops that have outstanding invoices from clients who have good credit will be able to qualify for this type of business financing. It will require that they sell those invoices to a company called a Factor. A Factor will purchase them at a discounted rate, typically for between 10% and 30% less then their full value. These monies can be used for whatever the machine shop needs. It may go towards paying employee’s salaries, insurance, purchasing materials, equipment or even for advertising. It doesn’t matter. The machine shop will have complete control any money they receive.
After the Factor purchases the invoices, all of the original company’s clients will then send their payments to the factor. All previous payment arrangements still apply. Once the Factor collects on all of the invoices, they will return the money back to the company which initially owned them. They may also resend payment as they come in. This will depend on the particular arrangement made between the Factor and the business. The Factor will then be paid a fee for their services and will also receive all monies which they originally purchased the invoices for.
This entire process can be completed within 24 hours, though it may take a bit longer the first time around. This is because it will be necessary for both businesses to come up with acceptable arrangements and the company selling the invoices will need to be able to prove the credit worthiness of their clients. However, after a relationship has been established, it is possible for companies to receive money within 24 hours.
It will be very important for machine shops to choose a quality and reputable Factor. Doing so will decrease the number of potential problems that come up. It is also necessary to ensure that any contract that is signed equally benefits both parties. Working with an established and reputable Factor will increase the likelihood that the aforementioned, occurs.