subject: Pressuring Customers to Pay Versus Factoring [print this page] Pressuring Customers to Pay Versus Factoring
Small businesses suffered over the last few years, and many could not pay their bills on time during the recession. Some companies began paying suppliers more slowly and increased payables outstanding by another 15 days, but often this negatively affected their credit ratings. Other businesses began relying on an age old business practice known as invoice factoring, a debt free form of financing that offers much needed support to small businesses struggling with raising capital to fund growth. It is not just corporate America or small businesses that pay late - it was determined that a number of central Government and Government agencies made one in three payments late as well. (Source: The Federation of Small Businesses' Voice of Small Business Survey; 2010.)Small businesses today are turning to invoice factoring, a debt-free form of financing, in order to convert their accounts receivable into a working line of credit, but minus the debt. This is one painless way to increase cash flow without have to go the extreme of pressuring customers via a staff of nasty collection agents. Most banks today like to concentrate on large corporate customers, while invoice factoring companies have emerged to help smaller businesses.Factoring is an alternative financing method which means your suppliers won't to carry the cash flow burden, and it will keep them current while you will still be able to accommodate new customer growth by extending credit. Traditional lines of credit require all kinds of stipulations, including personal guarantees, hard assets pledged as collateral, appraisal, audit and monitoring fees. A small businesses might have to wait 30, 60, or sometimes even 90 days for invoices to be paid. Invoice factoring can be established with as little as $10,000 per month in sales for smaller companies, and limitless sales per month for larger companies. This tactic will convert accounts receivable into a working line of credit. Even first time applicants can often get cash in 24 hours, and there are usually no obligations - no minimums or maximums, no fees up front, no co-signers or accounts to open like at the bank. Most factors can advance up to 90 percent against invoices.There are several other new factoring solutions for small businesses who find it difficult to attract conventional funding. One such solution is called single invoice factoring, or spot factoring, and it enables companies to get short-term working capital. One invoice at a time - this is one of the fastest ways to improve cash flow. Many businesses do not get paid immediately for delivered products or services, single invoice factoring, or spot factoring, benefits businesses that don't get paid for 30, 60 or 90 days by advancing up to 90 percent against one single invoice. A factoring company will purchase selected invoices at a discount by first looking at the creditworthiness of the client's customers. They can often fund within as little as 24 hours, and they do not expect to buy 100 percent of a company's receivables, so there are no minimum or maximum sales volume requirements.Most factoring companies have professional rates that are competitive. Each and every client's circumstances will vary and so this may have an impact on the fees that are charged. It is not part of a portfolio lending approach because each invoice purchase is a separate transaction.
