Do you find yourself surrounded by a pile of old invoices at the end of every month? If you want to free up extra cash for your business, consider selling your invoices in a process known as account receivables factoring. It is a fast and easy way to outsource a task and free up immediate capital for your small business.
Receivables factoring is an age old process. It has been a common business practice for nearly 500 years. Here’s a little information on how the process works to help you determine if the procedure is right for you.
Your accounts receivables are the payments you are owed. If you extend credit to customers on net terms, your business likely finds itself waiting on future payments. For some businesses, the waiting is financially stressing. When you allow a factor company to step in and buy your old invoices, the stress is removed and money is freed up immediately.
The factor company that purchases your invoice will give you cash up front for your invoices. The amount of the advanced payment usually ranges from 75 to 90 percent of the original invoice. When the factor company receives the full payment from your customer on the original invoice, they will send you the remainder of the balance, less a small fee. Their fee is usually around two or three percent of the original invoice amount.
Allowing a factor company to help you with slow paying invoices allows you to free up funds for daily expenses, fill more orders and have more breathing room for your business. Their charge is negligible when you think about the money you lose waiting for the capital you need to come your way. In fact, many small businesses are only able to offer credit because a factor company handles their invoices.
If your business needs a big ticket item and can’t afford to buy it, consider receivables factoring. It will free up the capital for you to buy the equipment your business needs. Receivables factoring is also helpful if your business is having trouble meeting payroll or tax expenses.
When you select a factoring house, be sure they are a full service company. You don’t want to worry about the A/R process, so be sure they will take care of it all for you. Also check to ensure their commissions aren’t too high.
If your business is expanding quickly or you need extra cash to keep your business going, receivables factoring is a great way to get cash fast. Research a few different factoring houses to find the one that’s the best fit for your business model.
Businesses have been selling invoices for hundreds of years because it is a mutually beneficial practice. The commission that a factoring house earns makes the process worthwhile to them, and having cash in hand makes owning and operating your business much easier. Look into receivables factoring to help your business advance to the next level.
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