What is a Receivable Factor and What Alternatives Are There?
If you are an entrepreneur looking for fast business funding options, you probably have lots of questions, such as what is a receivable factor, is it right for you and what alternatives are there. Getting answers is the only way to gather facts and make the decisions about what is best for your small business.
Not asking the questions and making choices based on speculation and hearsay can have a negative effect on your business. Having the right answers can help you choose the correct quick business financingsource for your unique needs.
The Advantages and Disadvantages of a Receivable Factor
A receivable factor is a third party lending source (called a factor) that will purchase the account receivables from a business and provide funding to the business based on the value of the receivables. This is a centuries-old practice that allows entrepreneurs to get the quick business financing they need when a traditional loan is unavailable or unattainable and time is of the essence.
These days, just about every business operates on an accounts receivable process. It is great for the customer because they get to purchase something and not have to pay for 30, 60 or 90 days. On the contrary, it’s not always so great for the business owner, who has to make payroll, pay bills, and manage daily expenses. Typically, your creditors and employees are not willing to wait until the account receivables become due.
Receivable factoring can help bridge the gap, giving you emergency business funding to use while you are waiting to be paid by your customers. You can then repay the money when your cash flow is stronger.
It seems like the answer to every small business owner’s dream when you need a short term business loan but you should be aware that this help sometimes comes with a hefty price tag. Knowing the disadvantages as well as the advantages of receivable factoring can help you decide if it is right for you.
Many traditional factors charge expensive fees for their services, often thousands of dollars which gets added to the cost of your loan. Also, they involve long term repayment schedules which could take you years to pay off. In addition, although they provide fast business loans quicker than a bank, it could still take up to six weeks before you receive any money.
Another thing you should know about factors is that they require your customers to pay their bills directly to them. When your customers see this, they will realize that you are having financial difficulties and may even decide not to do business with you again.
Alternatives to Receivable Factoring
You may be pleased to know that there are alternatives to receivable factoring that can still provide you with the instant business financing you need. Spot factoring companies, like Financing Solutions (www.fundmypayroll.com) usually have more favorable policies than traditional factors.
With spot factoring, you can get quick business financing in less than 48 hours. Additionally, there is no long term contract. In fact, most businesses that use spot factors are able to repay the money in a few short weeks or months.
This is a good method for handling short term cash flow problems or late paying customers. You can also use spot factoring companies if you have already been approved for a bank loan or traditional factoring help and are still waiting weeks or months to receive your money but need to pay bills now.
Ways That Factoring Can Help Your Small Business
A recent study concluded that some of the major issues causing stress for small business owners are making payroll, paying business taxes, and the ability to get business financing. Due to the account receivable gap, even companies that appear profitable on paper can be in danger of running out of cash.
Turning to a spot factor can help with all these problems. You can use the cash for working capital financing, so you can build a cushion to help with future cash flow shortages. There is no time like the present and no need to suffer from cash issues as long as there are spot factoring companies that can come to your rescue.