Factoring Can Be An Ideal Solution For Start Up And Or Growing

Factoring Can Be An Ideal Solution For Start Up And Or Growing Businesses

Factoring Can Be An Ideal Solution For Start-Up And/Or Growing Businesses
Factoring is​ one of​ the​ oldest methods of​ business financing in​ existence .​
The history of​ factoring dates back to​ the​ days of​ moneylenders in​ the​ middle ages .​
Factoring has been the​ working capital facility of​ choice in​ Europe for centuries .​
It has taken on​ a​ new life in​ recent years as​ a​ financing method for many businesses in​ the​ United States .​
Factoring is​ the​ sale of​ accounts receivable,​ as​ opposed to​ borrowing against them as​ you would do with a​ bank line of​ credit .​
By selling your invoices,​ you generate immediate cash flow instead of​ having to​ wait for your customers to​ pay .​
Companies often find themselves in​ the​ frustrating position of​ having sales opportunities which they cannot accept because of​ the​ lack of​ financing to​ support those sales .​
Banks normally cannot provide adequate funding for growth due to​ internal credit policies and external regulatory restraints .​
Even if​ a​ business can qualify,​ the​ bank line of​ credit may be totally inadequate to​ support the​ company’s sales growth opportunity .​
Primary advantages of​ factoring versus a​ bank line of​ credit:
• Factoring facilities are much easier to​ implement compared to​ acquiring a​ bank line of​ credit .​
• Factors have more flexibility with regard to​ documentation and credit issues than banks .​
• Factoring can be initiated and terminated very efficiently .​
When making a​ first-time purchase of​ invoices from a​ business,​ factors typically take one to​ two weeks to​ check the​ credit ratings of​ the​ customers and communicate a​ discount price .​
• the​ business receives payment in​ cash from the​ factoring company after delivery and invoicing a​ customer .​
Immediate invoice payment eliminates the​ sale-to-collection business cycle; thus allowing businesses caught in​ a​ cash crunch to​ obtain fast relief .​
Turnaround on​ the​ sale of​ receivables is​ only about 24 hours .​
• Factoring is​ a​ sale of​ assets (invoices),​ not a​ loan .​
For businesses that either cannot qualify for traditional debt financing or​ that simply do not want to​ incur more debt; factoring is​ good alternative means of​ funding working capital .​
• Factors purchase all rights in​ the​ invoices and the​ seller has secondary liability for any invoices not collected .​
The factors undertake debt collection,​ but the​ business remains ultimately responsible to​ repay any portion of​ the​ cash price attributable to​ an​ account that went uncollected .​
Factoring can be an​ effective solution to​ funding a​ short term gap in​ cash flow for the​ start-up or​ rapidly growing business.

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