Read this article to learn about factoring financing. Factoring is an ideal financing tool for companies that have to wait 15 to 60 days to get their invoices paid by their customers.
When a business owner needs working capital, the first thing they do is to visit their banker. However, they soon learn that getting funding from a bank is very hard. As an owner, the bank will demand that they have great personal credit. The bank will also want to see three years worth of audited financial statements – showing a profit.
If your business is new, it’s close to impossible to qualify for bank financing. However, factoring may be an alternative that is better for your business, and easier to get.
If you have clients that take 30, 45 or even 60 days to pay their invoices, and if this is hurting your business, invoice factoring can help. Factoring can provide you with a substantial advance on your invoices, providing the working capital you need to pay suppliers and employees. And, as opposed to conventional business loans, factoring is easy to obtain.
Factoring is also easy to integrate to all businesses. This is how a transaction looks:
1. You deliver the goods or services
2. You invoice your client
3. The factoring company advances you up to 85% of your invoice as a 1st installment.
You can use these funds to pay suppliers and employees4. Once the invoice is paid for, you receive the remaining 15% less the factoring fees.
Most factoring fees range between 1.5% to 3.5% based on certain criteria, but different factoring companies assess their fees differently. The biggest criteria to qualify for factoring is that you should do business with customers that pay their invoices reliably, such as government agencies or large corporations.
One of the biggest advantages of factoring financing is that it is tied to your sales. So as your sales grow, your financing also grows. This makes it an ideal tool for companies that are expanding.
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