Interestingly, research shows that many businesses both small and medium-size fail, not because business is bad, but because they experience difficulties when trying to meet short-term financial responsibilities. So how can a growing and profitable business get into serious financial trouble, or even go broke? It seems so contradictory, but on closer examination you'll see that it's not surprising at all. Traditionally, business owners have depended on conventional lending sources for a business Line of Credit, and this often includes short-term Bridging Finance. But there are also many people in business who've used their personal credit cards for business-related expenses.
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Once business owners have exhausted traditional means of funding, the process of acquiring extended financing can become a time-consuming, trying, and often impossible task. This innovative form of financing is known as Factoring; it's also sometimes referred to as Asset Based Lending or Accounts Receivable Financing.
Factoring has become a workable and realistic solution for many businesses, particularly when cash flow is uncertain and threatens the viability, or even survival, of the business. How Does Factoring Work?
Basically, when a business has credit-worthy accounts receivables, the factoring process provides the business with an instant cash injection on those receivables. So, sometimes, when a lender says 'no' to a business, a factoring company may say 'yes', thus offering the much needed cash injection that so many businesses require to move forward.
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Factoring companies understand the financial needs of their trucking clients and react very quickly to provide them with the professional, personalized, hands-on attention that they require. Freight Bill Factoring is actually a very simple process: it provides a business with instant cash flow in order to satisfy its cash needs, which in turn enables the business to grow and prosper. It works like this! Your company has quality accounts receivables, and needs a cash boost.
Once the customer invoice has been paid in full the balance is forwarded on. Yes, factoring costs more than other means of lending, but factoring clients believe the benefits far outweigh the costs. This means that, with factoring, trucking business owners can have money in-hand by the end of the same working day! In order to receive approval as a factoring customer, a trucking business must first-of-all be a reputable trucking business, and secondly, it must have credit-worthy customers. Once a business has been approved for factoring, funding will be provided on the same day.
It's important to note, also, that ongoing financing is only limited by the amount of receivables available for purchase. In the last decade we've seen factoring grow very quickly, and today it's become a financially feasible alternative for many trucking companies. Many trucking companies have stated that Freight Bill Factoring has made it possible for them to process orders and undertake loads from brokers that would otherwise have been impossible because of a lack of financing.
Freight Bill Factoring is here to stay, and it clearly has a place in today's business environment. Because of factoring, a trucking company can expand its customer base, increase loads, and even survive a seasonal slump. Thanks to Freight Bill Factoring, many businesses have been able to expand and grow, and easily survive in what has become a very competitive industry.
Factoring companies conduct financial business by allowing a business to sell its invoices to a factor also known as a third party business or individual. The price that the business charges is discounted in order to sell the invoices that are currently held, and make the cash that is immediately needed for any type of expenditures involving the business. A business that has immediate cash needs, but has no cash to pay for the expenditures that has occurred often ends up going under and eventually shutting down completely.
This takes a lot of jobs away from people, and can leave you working for someone else, no longer running for your business. No one wants to take this large step down from the current place that they are in. A business owner has worked incredibly hard to get to where he or she currently is, and does not deserve to have their business become obsolete. This is where the factoring companies can be a huge help to businesses.
So, Can Your Orange Company USE Factoring?
Invoice Factoring Keep in mind that factoring companies do not use the same process as invoice discounting. Instead, invoice factoring also called the "Assignment of Accounts Receivable" by the FASB and GAAP is the sale of invoices, instead of invoice discounting which involves collateral in order to ensure that the individual who took out the invoice discounting loan will pay it back. Factoring is not a loan; instead, factoring is the sale of invoices in order to get immediate cash. There is no loan in the process of factoring, and you will never have to pay the money back. Since the invoices that are sold are also called receivables, the entire process of factoring is usually called the sale of receivables.
Receivable factoring is much better than trying to take a loan out from the bank.
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Banks charge interest on any type of loan, and although there is usually collateral, it can put you in even more debt than you currently are. In addition, factoring companies are never going to give you a loan. When a factoring company funds your discounted receivable, he or she will choose to buy the receivable, giving you cash immediately. This cash can pull your entire business out of the hole that it is currently in. Instead of taking a loan out and getting yourself further into debt, factoring allows you to simply sell your own invoices and get back most of the money that you originally put into them.
Although this may seem like a bad process since you are selling valuable invoices, it is important to do, as the invoices are completely useless if your entire business goes under. Instead of trying to take a loan out to keep all of your receivables invoices factoring companies benefit you directly by giving you the cash you need. Although the first thought in most peoples' minds would be to visit the nearest bank as soon as possible and take out some kind of loan, this is very dangerous.
Although the loan may hold your business over for the next few months, it is simply delaying the same money crunch you already had. Unless your business is making an incredible amount of money, the bank loan that you took out has increased in the price that you must pay bank. Interest on a bank loan is how the banks make money and survive. Many loans have a very high interest rate, and if you are unable to pay the loan back in a short amount of time, you are going to be in more of a money crunch than you originally were in. In order to pay back the loan, you would have to make a large amount of money in a very short time, which is unlikely if you needed to take out the loan in the first place.
Rather than bothering with bank loans that will inevitably put you back in the money hole that you were in when you took it out, factoring companies are available to help you. A factoring company is a place where businesses can place their invoices for sale at a discounted price, which will allow them to receive immediate cash. As aforementioned, this money does not need to be paid back, as it is not a loan. Keep in mind, you are not selling your business. You are selling invoices in order to keep your business growing.
You will be able to get more invoices in the future when your business is back up and running, but if you do not sell these invoices, you will never be back up and running. When you are in a money crunch, don't put yourself back in the money hole that you are in by taking out a bank loan. Utilize factoring companies in order to get immediate cash that will help you get back up and running without putting a loan on your business. Once you start looking you'll discover that there are many factoring companies or 'factors' in the marketplace, and this is the perfect situation for you as a potential factoring client.
But it can also be confusing, because now you have to find the right factoring company to suit your business's needs. To assist you in making the right decision we've listed below the main issues that should be considered when choosing a factoring company. Both of these can vary a lot, depending on the factoring company and the industry it's serving. When you start your research you'll discover that some factoring companies charge a flat fee: this fee is, in effect, a certain percentage of the total value of the customer invoices you sell to them; whilst others have additional charges to cover the general costs of doing business - such as, money transfers, shipping, collateral, and so on.
Ensure that the factoring company you're considering working with is transparent and upfront with you about its fee structure. In addition, you may want to consider a long term contract with your factoring company if it includes flexible rates or a price break. If you're receiving competitive offers from other factoring companies or you have increased factoring volume, you'll discover that many factoring companies will be prepared to adjust their rates. A one year contract is the industry standard for most factoring agreements.
Generally, unless you give your factor a 60 or 90 day notice, your factoring contract will automatically renew. It's important that you understand the difference between recourse and non recourse factoring prior to choosing your factoring company, because you need to know what the best fit would be for your company and your customers.
THE COMMERCIAL FACTOR - International Factoring Association
So, with non recourse factoring, all of the credit risks for the collection of the invoice belong to the factoring company; while recourse factoring means that, with you being the client, you'll ultimately be responsible if the factoring company is unable to collect payment on your customers' invoices. There are benefits to recourse factoring, and perhaps the main benefit is that it's less expensive than non recourse factoring.
If you have a recourse agreement and the customer defaults on payment, it doesn't automatically mean that you'll be asked to settle the debt out of pocket. Generally, what happens is that the factor will hold back a portion of either future cash advances or payments being held in reserve, with the money being placed in an escrow account awaiting settlement of the debt. Our suggestion is that you find a factoring company that offers both recourse and non recourse factoring, because not all of your customers will be good candidates for recourse factoring.
An experienced factoring company working with a strong credit team can also behelpful in ensuring you're working with good customers: this will relieve some of the pressure of being stuck with bad debt. Once you start researching factoring companies you'll discover that there are a lot to choose from; however, many of these are recent start ups with limited experience. Prior to signing any factoring agreement, do your research and look into the history and background of the factoring company concerned, especially its ability to provide financial services in your area of expertise.
The idea with factoring is that, as your company grows, the funding of your customer invoices will grow with you. Research the factoring company's client base and their capital structure. What's a typical account size? What's the factoring volume of their largest client? Is the factoring company limited to how many debtors it can handle? In general, factoring companies that have been serving your industry for many years will usually be able to offer your business the best deal.
Because the factoring company will be handling the collection of your customer's invoices, your company will be saving time and resources. A good factoring company will also be able to evaluate companies in your industry and provide credit information. In short, your factor will ensure that you experience excellent customer service.
You'll be matched with your own representative who'll be able to address any questions or concerns you may have about your factoring account. So, when researching factoring companies, look for a factor who not only offers additional products but provides a high level of customer service that will help your business grow by assisting you in making smart business decisions.
Some business owners believe these two are the same, but there are, in fact, some small yet significant differences. What Is Factoring? Factoring is when a commercial finance company, also known as a factor or factoring company, purchases a business's outstanding accounts receivable.
Then, once the invoice is collected from the customer, the remaining balance - minus a factoring fee - is released to the business.ipdwew0030atl2.public.registeredsite.com/227495-best-cell-tracking.php
Here’s Why We Are The Factoring Company You Need For Your Dallas Business
The factoring fee could range from between 1. It's calculated on the total face value of the invoice and depends on how many days the funds are in use and other aspects, like the collection risk. When a business has a factoring contract they can usually choose which invoices they want to sell to the factor: it's not generally an all or nothing process. Once the factor has purchased an invoice they become responsible for managing the receivable until the account has been paid. Essentially, the factor becomes the business's accounts receivable department and credit manager, analyzing credit reports, performing credit checks, mailing invoices, and documenting payments.