subject: Save Your Business Through Accounts Receivable Factoring [print this page] There is a fast solution to your struggling business and it goes by the name accounts receivable factoring. This is as complicated as it sounds but many entrepreneurs have tried and tested its efficiency when it comes to business financing.
Accounts receivable factoring is a funding strategy designed for small business owners who want to replenish their working capital as soon as possible. Accounts receivables refer to invoices or receipts being factored or bought. Factoring companies allow a maximum of three days processing, including negotiations, to hand over the money to the client.
When the client turns over the invoices to the factoring company, the latter will assume responsibility in collecting from its client's customers, the debtor.
Normally, the interest rates charged per transaction is 1%-3%. There are also additional services that factoring companies decide from the overall amount of invoices factored.
So, if I were to factor invoices that amount to $5,000 with 1% interest, I would give my client $4900 and charge additional fees for the factoring service and credit protection. As soon as we have reached an agreement, I can deliver the payment to the invoice in as fast as 24 hours.
Speaking of agreement, there are two types involved in factoring namely with recourse and non-recourse. After all, factoring is not 100% risk-proof. Debt risks depend on the type of agreement a business owner enters into.
In with recourse, the client assumes the bad debt risk because he will have to pay off all invoices in case the customer was not able to settle them. In without recourse, the factoring company assumes the bad debt risk. The agreement prevents the company from reclaiming its money from the client. The factoring company will also have to pursue the debtor until the invoices are paid. It can also take legal actions against the debtor if it wishes to.
It is the business owner's responsibility to carefully choose the people he is about to do business with. Otherwise, his business will be at stake.
Providing emergency money that ordinary bank loans cannot provide does not make all factoring companies heaven-sent. Sometimes, you tend to lose more than gain more, reason why it is very important to select a factoring company that not only offers monetary aid but also quality service and credibility and good reputation. Only then can you feel confident that your business is in good hand.
How do you make a choice? Here's a few questions worth asking before you give it a go:
How many years have the company been in the business? Tenure has always been a strong indicator of loyalty. Factoring companies with long years of service means that it is loyal to its customers and faithful to its promises. Otherwise, it could have closed earlier than five or 10 years.
Does the company has good feedback? Positive reviews means approval and customer satisfaction. It means that the company was able to meet its clients expectations. There is a good chance you will like working with the people in this company, too.
Does the company's staff possess credentials? You can never be sure that your business is in good hands unless you are certain that the people handling the transactions are trained, educated, and certified. This means that everyone inside that building knows how to handle everything.
It would help to further verify the identity of your prospect through the Better Business Bureau, a directory of active business in the US. This will show complaints and satisfaction rate of the company. You can also ask for referrals and references. If these are not enough, go directly to the company head and ask the questions in person. It is not rudeness. I am pretty sure they will understand your action if they have nothing to hide.
