subject: Factoring Helps Small Businesses Stay On Track [print this page] Small businesses are suffering uncertainty and poor sales while economic recovery is benefiting larger companies according to some economists. Recent surveys of larger organizations show optimism about the economy, the recovery, increased sales, and plans for expansion. (Source: Institute for Supply Management.)
In fact the National Federation of Independent Businesses says U.S. small-business owners became even more pessimistic in March than they were in February. The NFIB's index fell to an eight-month low of 86.8 from 88, with only one of ten components getting better. The index has been below 90 for 18 consecutive months now, having hit a cyclical low in March 2009 of 81.0.
In these uncertain economic times businesses can leverage their current clients to stay on track by using invoice factoring. invoice factoring was a standard business practice in the garment and textile industries in the 1930's.
Today, factors exist in all shapes and sizes and service a wide range of business to business verticals. Ironically, factoring is not being taught in business college, and it is seldom seen in business plans. Accounts receivable factoring is one of the best kept secrets in the business community. To those in the know, factoring has often meant the difference between growth and failure.
Invoice factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount. It works like this: the factoring company buys your invoices for less than face value and gets paid in full by your customers. The difference between the discounted rate and the face value is the factors profit or incentive for buying your invoices.
Today's financing sources for the small business becoming tighter and more restricted, invoice factoring becomes an ever more viable option for business financing. It doesn't matter if it is to buy new equipment, raise immediate working capital or ease cash flow problems, factoring can often offer a practical solution.
This strategy could be of assistance to you if you sell products or services to businesses, if your customers have good credit, and if you have current orders that you are ready to ship, invoice factoring might be of great benefit to you and your company.
Many business owners have turned to other methods such as factoring, otherwise known as accounts receivable factoring because it offers clients a "use it as you need it" funding option, therefore every invoice purchase is a separate transaction and does not form part of a portfolio lending approach. The transaction is modeled as a buy-sell transaction.
a factoring company undertakes a thorough due diligence program that usually takes about 24 to 48 hours. After due diligence is completed, the client is at liberty to offer invoices to IFG for purchase. After receipt of the invoices, the factor will check the credit of the debtor named on each invoice and make sure the sale represented by each invoice has been satisfactorily complete. After the credit has been verified, each debtor is notified of the purchase by IFG and the client is paid. At the end of the credit period the debtor will make payment directly to the factor.
