Accounts Receivable Factoring - Perfect for Many Types of Business

 By: Lanette Tucker
Factoring, especially accounts receivable factoring, can be the perfect tool for your company; not only can it help your business stay afloat and secure essential funds, but also allow for the business to take advantage of opportunities to expand. Although factoring might not be best for every business; it is a necessary tool for others. Here are some sample scenarios where accounts receivable financing is the best option a business can have:

Great Tool for New Businesses

It's hard to start a new business; a business' ability to secure vital funds might make or break the company. Over and over again, we see new businesses fail because they cannot obtain the necessary funding: they cannot secure any funding from banks, and their other spending options are severely limited.

In order to effectively raise money without increasing debt, businesses should sell their accounts receivables. The last thing a new business wants is more debt, something that would significantly hinder a company's ability to show a profit, inhibiting their capacity to borrow cash in the future.

Accounts Receivable Factoring Allows Businesses to Grow Quickly

Businesses can grow quickly if they correctly utilize invoice factoring: they can use the money from factoring their invoices to pay for necessary inventory expansion, or to start a completely new product line or division. Using accounts receivable factoring, businesses can easily and quickly obtain funds, allowing them to re-invest in their business, drastically accelerating their growth.

Having Cash Flow Problems?

Problems with cash flow can stunt any business' growth. If your company can't grow because you are having difficulty collecting on outstanding invoices, factoring may be just the tool you need, providing necessary money right away, allowing your company to continue operations and increase revenue.

Hard to Get a Bank Loan?

If your company cannot get a bank loan, factoring is a great alternative. Businesses may not be eligible for a loan if they only have a few assets to use as collateral, or are fairly new and haven't turned a profit. In cases such as these, factoring will be able to deliver a large percentage of a company's outstanding invoices, typically from 75 to 90 percent.

Accounts receivable factoring delivers money right away, without having to qualify for a potentially nasty loan. Because factoring involves selling a business' invoices, they don't have to worry about repaying any bank, avoiding any further strain from loan repayment, thereby strengthening the company. If you are a start-up, or are fairly new, and would like to grow your business quickly, factoring is the best option available.
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A factoring company is specialized in funding invoices from businesses with cash flow issues due to slow-paying clients. In order to completely understand the role of factoring companies, you should have a clear idea on what is factoring. Factoring basically involves a transaction through which a business sells its receivables or invoices, to a third party financial source called as a factor.
Because of the uncertainty of top line sales growth, many companies both big and small are loathe to hire new employees. In addition, the legacy costs once you add a new employee and the high cost if that employee does not work out are even larger negatives to hiring.
The basic problem faced with staffing agencies, is that they pay their temp staff on a weekly basis from their balance sheet, but don't receive payment from their contracts regularly - this short fall in cash flow must be addressed in some manner, and invoice factoring fits the bill perfectly. Factoring is a service that a very large percentage of the recruitment industry uses.

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