Don’t Fear Factoring
If your business needs cash, has trouble collecting payments from customers or you simply do not enjoy that aspect of the business, factoring could be a great solution for you. Unfortunately, many business avoid working with a factor company because they do not understand how it truly works. But it is much less scary than you might think it is!
No Long-Term Commitments
Very few factoring companies require long term commitments. In fact, if you are just needing some cash temporarily, many companies will offer a contract for as little as three months. Of course, you can always sign a longer agreement but it is not required by most partners.
Easy to Qualify
The process of applying and qualifying for a bank loan can be time consuming and difficult. Your business’s credit history is not nearly as important as the creditworthiness of your customers. If you have sound business practices, your credit will not prevent you from qualifying for factoring.
Continual Access to Accounts Receivable
Tracking your accounts receivable can be time consuming. When you turn them over to a factor, you no longer have to undertake the hassle of tracking the invoices and collecting payments but you still have continual access to the progress of the account. You can go online at any time to check the details of each invoice and see which customers are paying promptly.
Most companies charge about 3% per month for each invoice. Assuming your clients and customers pay the account within the first month or two of receiving the invoice, this is a very affordable rate. The only time you should be considered about this rate is if your customers take a year or more to pay the account. However, this rarely occurs.
Increase Cash Flow
Small businesses run into problems caused by open invoices. They have to pass on large orders or struggle to pay employees because clients have not yet paid. If you choose to work with a factoring company, you can avoid these problems by having an increase in your available cash.
Factors have existed for thousands of years. It is a common form of financing to help small businesses increase cash flow. When you take the time to learn about how factoring works and the risks and benefits involved, you could realize that it could help your business succeed. The flexibility, affordable rates and ease of use should not scare you away from working with a factor company.