Receivables factoring might be something new business owners are unfamiliar with. This is in spite of the fact that many small business owners are often in need of quick short-term cash, not knowing that receivables factoring might be the solution they are looking for as opposed to taking traditional business loans from a bank. With receivables factoring, it is possible for small businesses to have quick capital to help them get out of financial strains.
WHEN YOU SHOULD USE RECEIVABLES FACTORING
Receivables factoring is, at its core, a method in which you sell your upstanding invoices to a factoring company and receive a percentage of the amount of the invoice almost immediately, often within 24 hours since the invoice is verified. The amount you can receive in advance varies, but it generally ranges from 70 to 90 percent depending on several factors. The factoring company will then collect the invoice from your customer and pay to the reserve balance, minus fees for their service. Compared to traditional loans, receivable factoring is a better option for when a business is in dire need of immediate cash, as traditional loans often have a lengthy procedure that could take months to go through.
Aside from the times you need fast funding, receivable factoring is also an option for many other situations. If your credit is poor or your bank balance is low, receivable factoring is still an option you can take, as a factoring company will take into consideration the credit rating of your customers, and not yours. It is also an option for when you do not want to deal with collecting payments from your customers, as the factoring company will do it on your behalf. This allows you to allocate more time and energy into growing your business instead.