Technology Companies Succeed by Factoring Invoices

 By: Lanette Tucker
Technology companies, like most companies, need a significant amount of capital to conduct business. With our current economic climate, it is a lot harder to qualify for a loan from a bank or other financial institution, leaving most companies to pursue other alternatives for funding.

Accounts receivable factoring or financing is perhaps the best alternative to a bank loan, since it allows businesses to secure large amounts of capital in a very small amount of time, typically within 48 hours. Compared to the lengthy amount of time required to apply for a bank loan, accounts receivable financing can't be beat. Accounts receivable factoring is perfect for many technology companies: as they often need to quickly obtain capital, accounts receivable financing allows technology companies to do anything from funding payroll to bankrolling other projects, expanding their business.

Let's say a customer owes your technology company money: you can use the invoiced money to generate real capital via accounts receivable factoring. Rather than waiting for the customer to pay your invoices (typically 30-to-90 days), you may quickly receive money by selling to your invoices to something called a "factor" - a company that purchases your invoices for 70-to-90-percent of their value. The Factor immediately supplies your technology company with money, enabling your company to do what they wish with these newly-acquired funds.

Then, instead of collecting on the invoices yourself, the factor takes care of these accounts receivables, according to the original payment agreements. All of the technology company's clients will pay the Factor directly, and the Factor will pursue collection actions if necessary, alleviating the tech company's need to spend further time and funds collecting on past-due invoices. After collection, the money will be returned to the technology company, minus fees and funds already dispensed, proving to be an excellent symbiotic relationship for both the tech company and the Factor alike.

Technology companies typically find themselves cash-constrained: unable to generate essential capital using traditional means, including bank financing. Accounts receivable factoring is an excellent way to receive money on-the-spot, rather than incurring more debt.

Regardless of a tech company's credit history or age, accounts receivable factoring is the perfect tool for any company that needs funding, as long as the company's clients and customers have good credit. Accounts receivable financing is a very viable option to generate capital when a cash-flow problem arises, allowing a technology company to flourish in any economic climate.
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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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