Since the economic down turn most businesses have faced challenges with maintaining cash flow. Banks and other financial institutions have tightened up their lending forcing business to look at factoring – finance to meet their day to day cash needs.

What makes this form of financing so attractive is that unlike other forms of financing where the loan is determined on the credit worthiness of the borrower, with factoring it is based on the credit worthiness of a company receiving the product or services from the business.

To help make better sense of this, When a business sells products or services to clients unless it is a cash payment upfront there will be an invoice produced. Businesses incur a cost to deliver these products and services so while they are waiting for their clients to pay, the day to day costs of the business must be met. If there is a shortfall in cash flow then either new funding is secured or work stops.

A business that has delivered a product or services can sell these invoices to a firm that performs factoring services. These firms look at the amount of an invoice then review the credit worthiness of the company that received the products or services. If the business providing the factor service determines the business to be suitable they will buy that invoice at a discounted rate.

There is distinction between this facility and a traditional loan, some individuals believe there is a loan being offered and the invoice is the collateral however that is not the case. The invoices are bought and the company that offered the product or services receives less than the face value of that invoice, the difference between that amount and what is received is the revenue for the company doing the factoring service.

While not everyone may be intimately aware of the benefits of this service, it meets an ever pressing need that all businesses face from time to time. In an effort to keep growing a company needs cash and large amounts of it, if their clients are slow in paying it can really have an impact on the progress of the company as a whole. In these situations getting help with a factor service is key to long term survival.

The discounted rates paid on invoices vary greatly depending on how credit worthy the invoiced company is, those companies that are highly reputable and have pristine credit are treated more favorably than firms with no established credit track record or name recognition.

Most individuals may not know that these facilities have been around for many years however it was never given the attention until other financial institutions clamped down on their lending. Now with sources of funding very limited selling invoices has become a common occurrence for businesses.

Business leaders will need to look at more dynamic ways to get access to funds as they grow, factoring – finance meets that need which allows clients to reduce their receivables outstanding and keep cash flowing into the venture.

Accutrac Capital Solutions offers factoring and purchase order financing to help business structure their financing.

Accutrac Capital Solutions offers factoring and purchase order financing to help business structure their financing.
http://www.accutraccapital.com/

Author Bio: Accutrac Capital Solutions offers factoring and purchase order financing to help business structure their financing.

Category: Finances
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