Account Receivable Factoring and Home Healthcare Company
By: Kimberly Teschemacher, Public Relations Director
Most business do not have enough assets to get a bank loan approval, so in the past, companies would turn to long term account receivable factors. In some cases, account receivable factoring might have been the right solution. However, today there are a lot of funding alternatives. Account receivable factoring is when a company sells its receivables to a factor and the factor will give the company approximately 80% of the value of the invoice. This type of funding arrange is usually a long term relationship of 2 or more years.
Often times, small businesses are financed through existing cash flow, so they generally don’t need financing for a long time period. Instead, they sometimes need short term business financing to get them through a rough spot of say 30-60 days. Long terms account receivable factoring is not ideal for this situation because of their high interest rates and annual fees. Further, factoring companies do not want to factor only a few invoices, they want to factor them all, and they want a long term relationship.
If a business is expecting a year over year growth of 50-75% annually for 3-5 years then this type of factoring maybe suitable but very few businesses actually see that type of growth over 4 or more years.
A home healthcare company ,who switched from a long term account receivable Factor to Spot Factoring by Financing Solutions, saw great saving and was not locked into a long term commitment. The owner decided that long term Factoring was too expensive due to the corresponding 30% fee/interest charges. The owner knew his business patterns, and realized that they needed funding specifically when the government, his biggest client, was delayed in paying their bills and that this delay usually put a financial strain on the company once per year in June.
When the home healthcare company switched from account receivable factoring to Financing Solution’s spot Factoring, they ultimately saved $70,000. The Financing managing partners also helped the company realize that the home healthcare company was actually spending 37% on factoring on an annualized basis and not the 30% the owner thought.
Currently, the home healthcare company got rid of the long term Factor and now does Spot Factoring from Financing Solutions once a year for approximately 30-45 days. The funding is paid off as soon as the government pays their invoice. This allows the home healthcare company to remain self-sufficient by getting fast business funding when they need it.
Financing Solutions provides small businesses with short term business financing that helps get them through their financially rough times, and enables them to become self-sufficient again. If they need additional funding in the future, then Financing Solutions simply allows them to get funding again as long as the previous payments were made on time.
Financing Solutions (www.payrollfinancingsolutions.com) provides fast business funding of $5,000-$100,000 to good small businesses with sales of $500,000-$7 million that can be used for working capital or to make payroll.