If you were to ask any business owner what the most important factor for running any business is, they would answer unilaterally the same thing: cash. Cash flow is at the heart of every business in every industry and in every country across the globe. Without cash, no business can operate. And while it is the most vital component of any business, cash is also the most difficult to come by.
In the normal cash flow cycle, businesses generate cash by making sales. In order to make a sale, a business has to create a demand, create a product or service, find a customer and then convince them to make a purchase. In many cases, the purchase a customer makes includes the ability to make payment at a future time, which is commonly known as a credit term. And while offering credit terms to customers is a great way to entice them to make purchases, it severely restricts the amount of cash a business has access to in order to repeat the cycle. That’s where business financing comes into play.
Factoring companies play a vital role in the cash flow process in that they can speed up the process whereby companies that offer credit terms to their customers are paid. Invoices are sold by these companies to invoice factors in exchange for a lump sum of cash and the transfer of liability of the invoices sold. This arrangement offers companies the speed and convenience of a cash sale without the hassles of qualifying for a traditional bank loan or asking principle owners or investors for a capital injection. Here’s how it works:
When a company decides to finance accounts receivable, it first looks for an invoice factoring company that offers the services they need. They then review their existing invoices to determine which ones they can sell in order to cover the cash shortfall they have. These invoices can be current invoices, future receivables or even past due accounts. The amount the factoring company will pay for an invoice depends on their ability to collect on the invoice. Past due invoices will be worth less than those that are current.
The company then offers the invoices to the factoring company and the values are assigned. If everything is agreeable on both sides, the transaction closes and the invoices are transitioned to the factor while a lump sum payment is made to the company. The entire process can take as little as 48 hours, ensuring that companies can continue fulfilling orders and completing the cash flow cycle.
So, if your business is in need of some extra cash and you have invoices that are awaiting payment or past due invoices that need to be collected, considering finance accounts receivable as a viable alternative to traditional commercial financing vehicles. You can get the money you need without the hassle of qualifying or waiting for traditional bank loans and without the worry of yet another monthly payment. It’s a win-win for businesses of any size