subject: Receivables Factoring Can Provide Business Financing Solutions [print this page] Receivables Factoring Can Provide Business Financing Solutions
Business financing has become a very difficult tool to obtain for smaller businesses in the USA. Fortunately, receivables factoring has provided some needed cash flow help for the thousands of organizations that have been declined by traditional bank capital sources. Banks, for valid reasons are getting very concerned about current and future federal regulations put in place by the Obama administration. This has lead to record numbers of small business owners that need to look outside the box at other business finance solutions that do not require years of historical profitability.
Federal regulators audit banks to make sure they are not providing high risk loans that are not backed by solid and reasonable credit review. The feds even have the power to shut the bank down or impose restrictions and penalties that can cripple the banks future. Now it makes sense why most banks have slowed down or even stopped granting small business working capital loans. The good news is that other business financing solutions offered by non bank sources, such as account receivables factoring, have started to fill in the void. Not all companies fit for factoring invoices, as most factors require only business to business receivables for financing.
They way it works is the factor provides advances on invoices generated by the business. The normal advance is 80% to 90% of the total invoice. This allows the business access to the cash that normally would arrive 30 to 60 days later. Once the customer payment arrives the factor keeps a discount fee that can range from 1% to 5% and sends the remaining funds back to the business. The processallows the factor to get comfortable by using the clients customers credit ratings to provide a working capital solution. Once you have the ability to access 80% or more of your receivables in advance of payment you have harness many of the benefits of a traditional line of credit used for working capital.
Receivables factoring is expected to continue growing rapidly this year as companies look for working capital solutions. If your company has been turned away by the bank for working capital and you have customers with decent credit history, invoice factoring could provide a solution that could keep your company moving forward.
