There are many times in the life of a company when funding for small businesses is difficult to arrange and time-consuming. Banks may take forever to respond to your request for an overdraft that is often expensive. Finding a suitable factoring company may be an excellent way to enhance your cash flow.
Can Your Small Business Raise Funds?
Without a full track history and proof that you can maintain and clear your loans effectively, your bank may not consider that you are a satisfactory risk and turn down your application.
This may mean that your options for funding for small businesses may be reduced. You might not be able to purchase goods until your cash flow improves.
However hard you try to chase your invoices to be paid quickly, larger companies often take longer than necessary to respond to your requests.
Where there is a requirement for funding for small businesses to purchase stock, hire new employees or clear debts at a discount, you may choose to use your accounts receivables in conjunction with a factoring company to boost your cash flow.
The factoring company is mostly interested in the organization who will pay the invoice, rather than your company that has completed the work. Where the factoring company is satisfied that the debt can be paid efficiently, they may offer to pay you a high percentage of your invoice within one or 2 days.
The factoring company makes its profit by charging a fee, often as a percentage of the invoice being collected. You will be able to compare factoring companies by the quality of the service and the amount of the fees that they charge.
The accounts receivables process is quite straightforward. The factoring company becomes a collection agency, and your organization will send your invoices directly to the factoring company.
You will not become responsible for chasing or collecting the funds that your business requires. The overall idea is that funds can be released to your business quickly and not through a slow process that may become more expensive through your bank or other financial institutions.