Business Benefit From Factoring Companies

Any business that sells products and services to the government or other businesses

can have difficulty managing cash flow because many of these clients pay in 45 days. Established companies are able to handle this wait, but new and growing companies often struggle because they don't have the resources to cover overhead expenses without the payment.

Companies can ask clients to submit faster payments, but this rarely succeeds. Clients insist on their normal payment schedule. It can put your contract at risk, too, if clients feel that your company doesn't have the resources to take care of its obligations. Some companies try to get a bank loan, but banks don't lend to businesses without a solid financial background and proof of long term profits. The financing that banks offer is often not the financing these businesses need.

Businesses have another option. If clients paid 80% upon receipt and the other 20% in 45 days, many companies could handle cash flow during the waiting period. This type of agreement would provide enough money to pay expenses and begin new projects, but clients won't offer these terms. Businesses can arrive at a similar term by factoring the invoices. Using a factoring company would allow clients to pay in 45 days without hurting the company's ability to pay overhead.

Factoring financing is a viable, solution. Businesses receive approximately 80% of the invoice immediately. A small fee is taken out of the 20%, which is paid after the client pays. Businesses gain predictable cash flow and can pay recurring overhead. It also gives companies the ability to grow. Invoice factoring is sustainable and pliable. It grows as the company grows because it is related directly to sales.

It's easy to get set up, and in about a week, you'll be on your way to predictable cash flow. The main prerequisite for qualifying is that your clients pay on time. The average cost of the service ranges between 1.5% and 3.5% depending on the size of the financing facility and the creditability of the clients.

Factoring invoices greatly benefits businesses with decent profit margins that suffer from slow paying clients. Because factor financing provides predictable cash flow, the benefits greatly outweigh the cost of the service.

by: Steve Troy

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