What is a Receivable Factoring Company
You may not know what a receivable factoring company is, or you are aware but think you will never need one. Either way, it’s worth learning more about them and what they do because one day, a receivable factoring company might be all that separates your small business from failure.
The Basics of Receivable Factoring
Receivable factoring is an alternative funding source that small business owners can turn to when having cash flow issues. These companies provide an advance, based on the amount of your account receivables, during an emergency or over the long haul of your company.
The process, one of the world’s oldest types of business transactions, is quite simple. You have account receivables but your clients may have up to 90 days before they must pay. However, you have bills and expenses that need to be paid today. A receivable factoring company can help by purchasing your account receivables, giving you an advance based on what is owed, and then will collect the funds from your client directly.
It may help to think of receivable factoring as a stop gap measure. You get your money when you need it, and you can pay it back when things have calmed down a bit and you are no longer in emergency, do-or-die mode. This frees you from worry so you can better focus on the business at hand but there are some negatives to traditional long term Factoring.
The Difference between Factoring, Cash Advances and Other Funding Sources
During an immediate cash crisis, the traditional bank is not going to be your friend. They require lengthy applications, more collateral than most small businesses possess and long term repayment schedules. When you have need cash right now, they are practically useless.
Traditional factoring companies are a bit better. They can get your money to you in 30 to 60 days but it often comes with expensive fees and long-term agreements that may take years to pay off. Plus your clients will know that you are using a Factor because your bills will be payable to the Factor.
You also have the option of cash advance spot factoring companies like
Financing Solutions (www.fundmypayroll.com). The difference between a cash
advance organization and the others is a much shorter contract, which can usually be repaid in weeks or months, instead of years. Also, they are super fast, with approvals usually within 24 hours and your clients will not know about your financing method. A cash advance company is almost always cheaper than a Traditional Factoring company.
Reasons Your Small Business May Need Receivable Factoring
There are basically two types of small businesses. On one side are small businesses which grow, change, and adapt so that they go the distance to have continued success for many years. Then, there are those that quickly burnout and fail. One of the most common reasons that small businesses fail is that they simply run out of cash because they have ebbs and flows of cash coming in and going out.
Right now, you may believe that could never happen to your small business. You have a strong business plan, plenty of customers and a good reputation in your community. However, it only takes one emergency, unexpected expense or a few late paying clients to deplete whatever cash reserves you have come to rely on.
In addition, some small businesses are merely profitable on paper. Sure, your
business might have lots of account receivables with a veritable superhighway
of traffic for supplies coming in and orders going out. All this activity could cause difficultly in knowing whether you are actually making money.
This is where cash advance companies may provide a lifeline for your small
business. There are cash advance companies, like Financing Solutions,
which can supply you with funds, based on your account receivables, for temporary emergencies that may prevent you from missing the payroll, ordering supplies or paying taxes.
In the current tight economy, alternative funding sources are more valuable than ever for small business financing solutions. It’s like having a friendly, understanding banker on speed dial, just in case.