Why Consider Small Business Factoring?

In Business, everyone has creditors and debtors. If you are a Small Business owner, your largest debtor is represented in your accounting books as accounts receivables. The total of your Accounts Receivables is the expected collections from your debtors.

You bill each customer for the amount they owe you and until they pay, each invoice is recorded as Accounts Receivables in your books. But even though this figure actually represents current assets to your company, they cannot be used to finance anything. That’s where Small Business Financing comes in.

There are many different terms used as synonyms for Small Business Factoring such as Invoice Discounting, Invoice Factoring and Accounts Receivable Factoring. With this type of Commercial Lending, a company would sell or offer as collateral their outstanding Invoices to a Commercial Funder who would advance them a percentage of the face value of the Invoices. The advance rate will vary from Commercial Funder to Commercial Funder, but an average will be 85% of the Invoice face value.

Once you enter into an agreement with a Small Business Factoring Company, the Factoring Lender will now take over the rights to collect the debt amount from your debtors. Thus your debtors would be informed to pay the Factoring Company directly on behalf of your company. This works out to be a win-win situation for you and the Factoring Company.

The advantages to Small Business Factoring are many, here are a few:

1. Cashflow Increased: With an available Cashflow, your company will be able to pay bills and meet payroll without having to worry about having sufficient funds.

2. Predictable source of funding for your business: You will not be forced to wait for 30 to 90 days to collect on your sales; you will have funding available to you within 48 hours of generating your invoices.

3. Reduced reporting: As you know, when you have a traditional Line of Credit with a bank, you will likely need to do monthly reporting to stay within the covenant set out by the bank. With Small Business Factoring, you will not need to do nearly the same reporting. In fact, much of the Accounts Receivable reporting is done from the Factoring companies systems.

4. Fewer rules than banks have: Banks are famous for their strings being attached to everything. Factoring Companies do not have as many rules and are more flexible for changing situations.

Now that you have seen some of the advantages of Small Business Factoring it is time to speak with your Commercial Finance Broker to see which programs fit your company the bestBest of all, most Commercial Finance Brokers are set up with the Small Business Factoring companies and they pay your broker, not you!