Using factoring as a means of improving cash flow

Factoring is a common process in the small business world. Factoring is the process of selling your accounts receivable invoices to a third party who then is in charge of collecting on the invoice. The agents in charge of collecting are called factors. Factoring for small business is a great way to provide financial growth. Since cash flow is so essential in business, factoring is the best method to expand operations.

Factoring allows a company to sell invoices at a discount and be paid a cash advance before the invoice comes due. Since many businesses monthly sales do not produce cash on time, factoring is a great method to pay wages and creditors.

One of the great things about factoring is that it does not tie up assets outside the business and does not involve repayment of debt at some future point in time.

Like any other service, factoring does cost a portion of your sales. To offset the costs of factoring, many companies increase prices or look for supplier discounts. Factoring fees are determined by 4 variables:

• - Risk - credit worthiness of your customers.
• - Maintenance - work involved in the A/R.
• - Time - How long your customer takes to pay.
• - Volume - The higher the volume, the lower the fees.

Many companies use factoring as a means to improve cash flow. The key factor is the weigh the cost against the benefit of having the cash on hand sooner rather than later. Factoring for small business is usually an ideal solution for obtaining growth. Factoring allows a small business to secure cash advances against outstanding invoices, rather than using personal assets to secure a loan.

Many companies struggle with collecting money from customers. Collecting past due money ensures cash flow to support growth of the company. Relying on a factoring agent to perform the role of collection is useful for smaller businesses as they have less time to dedicate toward this.

Why does factoring helps improve your business? Here are a few reasons how factoring can help:

1. Cash Flow - Factoring allows you to sell invoices to a third party at a discount, thereby giving you money now to pay your expenses.
2. Financing alternative - Factoring is a powerful funding tool for supporting growth
3. Cash on hand now - Factoring allows for funds to be in your account quicker than waiting for invoices to be paid.
4. Simple to use - Factoring is easy to use.
5. Leverage staff time - Factoring assures that who you do business with is credit worthy.
6. Professional Visibility - Factoring allows for invoices to be collected in a professional and consistent manner.
7. Success Factor - Factoring is a step up the financial ladder to improving your overall cash flow.
8. Funding Capacity - Again, factoring does not use personal assets as a way of funding companies.
9. No funding limits - Factoring does not have a limit on qualified invoices.

Factoring for small businesses typically takes about 5 to 7 days to set up. Your company will meet with a Business Development Officer (BDO) and submit an application and go over numerous invoices that need to be factored. After you are accepted and a security agreement is signed, the customers will be notified that all invoice collection will be handled by the factor company.

Factoring can be available as soon as your input your first invoice and it grows in line with your sales. Since factoring is not controlled by management, they have more time to dedicate to other projects. Factoring is a great cost saving alternative to hiring an in house credit controller. Looking at ways to increase the cash flow through factoring is easy. With a small investment in factoring, your cash flow will flourish.