If you are small or medium sized business, you are often faced with a very typical situation where you have money due from your customers. These businesses will be paying you the amounts only after 45 to 60 days. However, you also have your own set of payments to make at certain dates, like salaries, bills to be paid, and rents to clear.
For these payments, the money that your business requires may not be readily available at hand or from your bank especially when large amounts are due. Moreover, if your business approaches the banks for finance the probability of getting a good loan is less, as your business has no proven standing yet in the industry. As your company is small or medium sized, you do not have the necessary credit ratings built up over a period. You are yet to prove yourself a good business proposition for the banks. They may not be ready to risk giving you loan incase you default on the payments. This proves to be a very difficult scenario for you. For your business to grow you need finance and to get finance you need to be a big business. There are tricky situations where you may not be able to grab some big contracts because you do not have the finances in hand to show. This is an excellent opportunity lost. In such a situation accounts receivable factoring provides you a good option for financing your business needs.
How Truck Factoring Works
When you need working capital for running your business operations and are unable to get finance from a bank, it comes as a relief that you are eligible for financing from factoring companies. What you have is some good asset like the invoices, which are receivable from your customers. The factoring companies will provide you with finance against the invoices that they buy from you. You need to remember though that the creditworthiness of your customer is very important when you are considering the factoring option. If your customer has a good credit record then you will get finance at a good rate. Generally, if you have contracts from government institutions or big business you will get a decent rate. You may get up to even 90% of the invoice value. This is simple, since a customer with a good credit standing will pay the amount due on the stipulated date. The company does not stand to lose anything. Depending upon what type of factoring, recourse or non-recourse option you have you will be responsible to pay if the customer does not pay.
With factoring, the finances are timely when you have urgent need for the money. This is helpful for you to keep the momentum going when you are growing at a good rate. Improved cash flow means chances to get new projects improves. New projects means new invoices for further finance needs. If you have a good record with your initial invoice factoring, you will find that the Factoring Companies are ready to give you good financing options.
All those businesses that need finance urgently and are unable to get it from banks as well as have late paying customers; invoice factoring is a good option.
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