When someone owns a small business, there are a million things to take care of, and one can't afford to worry about attaining capital for financing the growth of the business. When a company is facing the problem of not having a credit rating that will support bank loans, the company should look into learning more about accounts receivable financing.
As we move forward, there is one essential question that you will need to answer concerning your business. Will accounts receivable financing be a good match for the business you manage?
Accounts receivable financing, which is also known as invoice factoring, is the process of a finance company assuming risk on the receivables of another company. The amount of value that is attributed to a receivables account depends on the age of the receivable, as well as the credit rating of the customer who owes on that account. A more up-to-date and current invoice will usually pay more to the supplier in terms of the percentage paid in advance. Any receivable accounts that are over 90 days old are usually considered invalid and will not be financed by any factoring company. The reason for this is that the older the accounts receivables are, the less likely the business or individual that owes will pay.
There are many benefits of turning to accounts receivable financing or invoice factoring. One of the benefits is that the business does not have to worry about collecting on their own invoices and receivables. By outsourcing their accounts receivables to third-party, they are freeing their time and cash flow, to focus on other more important and productive business activities.
Another benefit is that the factoring company could provide the supplier's business with more working capital. Many businesses and companies have the majority of their capital tied up in inventory. So, any cash that can be moved from paper-to-dollars will help keep the company better financed.
A third benefit of accounts receivable factoring is that the company can have access to quick financing, without a business plan or tax statements. This is a quick form of cash and can be used for any business with pending invoices, especially if the company is experiencing a cash drought.
Before jumping into the practice of using receivables financing, the decision maker for the business needs to think carefully about whether this type of business financing is the right direction for the business to go. It should be carefully considered whether the money is really necessary at this particular time for the survival of the company. One should also determine if the business is ready for quicker expansion.
Another point to consider is whether or not all possible sources of financing for the small business has been explored, reviewed and considered. The decision maker also needs to take a good look at the factoring company's contract, as many companies sneak a lot of additional fees into their contract, and they might even employ monthly minimums as well.
The truth is, receivable loans and invoice factoring can mean the difference between life and death of a company. And, if your receivables financing agency is taking your business to the cleaners, the service they offer might take a toll high enough on your bottom line to push your business into the financial abyss.
By employing 1st Commercial Credit as your factoring company of choice, you will have our team of professionals helping you make the right decisions for your business. Our people are team players, and we are as concerned about your bottom line as you are. As the largest independent provider of asset-based financial services, you will have access to a complete line of factoring services. You don't have to struggle through cash crunches anymore - now that you have chosen to add 1st Commercial Credit to your team!