subject: Invoice Factoring: Collect Accounts Receivable Sooner With Financing Alternative [print this page] Running a small business takes guts, ingenuity and, of course, money. The old saying is true: "You have to spend money to make money." Unfortunately, when it comes to small and mid-sized business operations, there is generally little working capital to spend on anything but the necessities.
Invoices get sent out, but payment for goods and services may not come in for two to three months and sometimes longer, especially in this economy. What is a small business owner to do when they need cash fast?
Thanks to the Internet, an innovative new concept has arrived to give small to mid-sized businesses access to this payment in as little as one day instead of weeks or months. Similar to invoice factoring, this method of financing is the wave of the future in financing options for small businesses and mid-sized businesses (SMBs).
The success of SMBs is contingent on growth and vision. Without working capital, it is impossible to bring these to fruition which is a great detriment to any business venture. When an opportunity arises, SMBs can grab it by getting funds through invoice factoring, but they also lose some control with this option.
With invoice financing in an online marketplace, they retain control of what accounts receivable they want to sell, the minimum bid and maximum fee they will accept. Having to wait for the cash may mean a lost opportunity or, even worse, losing the opportunity to your competition.
This is not a loan process; it simply provides a way for SMBs to receive payment on an invoice quickly and efficiently by selling the outstanding invoice to a third-party Buyer.
Because the accounts receivable are placed on an auction site which connects the Sellers with Buyers, the small business owner can get a competitive rate for the sale of their invoices and receive in as little as one day, payment of instant funds minus the fee to the Buyer.
The Buyer pays a predetermined advance amount on the invoice. The transaction is complete once the debtor has paid this amount including any accrued fees to the Buyer. Any remaining funds go back to the Seller. If the receivables remain unpaid, the Seller is obligated to repurchase it from the Buyer.
With a conventional loan, small businesses have a monthly payment obligation as well as accrued interest. The lengthy paper work, personal guarantees, covenants and onerous credit check procedures are also time-consuming.
With invoice factoring and financing procedures, owners get money already owed to them and only pay a small one-time fee for the convenience. Because Buyers compete to buy the invoices in real-time, the seller gets a competitive cost of capital.
This low-risk form of financing puts the control in the hands of the business owner as well as the Buyer. The owner can list one invoice or twenty, whatever meets his needs. The Buyer can pick which auctions suit him best and bid accordingly.
The online auction site takes the responsibility of verifying the identity of the Buyers and Seller and manages payments electronically between the two.
In ever-changing economic times, innovative means of accessing capital in a small to mid-sized business is essential to a successful endeavor. A discount fee is a small price to pay for faster access to money that is owed to the business anyway.
In fact, often there's an even bigger opportunity cost for businesses when their working capital is tied up in outstanding invoices. With cash in hand, new equipment can be purchased, much-needed repairs made or even new employees hired. It is a win-win situation for all involved.
