When to Look For Alternative Business Financing

1. Do you have clients with good credit but need extension beyond thirty days?

2. Is your relationship business to business or business to government?

3. Are your profit margins good but cash flow is not keeping up with the operational needs?

4. Are turning down business with contracts due to cash flow problems?

5. Has your bank has turned you down for the amount of money you need to operate efficiently?

6. Do you need financing without creating debt?

7. Do you need some help with building your credit?

8. Is your need for cash is time-sensitive and transitional?

9. Do you need help with financing clients who take longer than thirty days to pay your invoices?

10. Is your business growing but cash flow not adequate to sustain growth?

11. Do you need a means of adequate financing that will increase as your company grows?

12. Does your credit need to improve in order to qualify for commercial loan?

One of the challenges of business is to have a means of financing growth. Wouldn't it be nice if your means of financing would stay in sync with the growth of your business? As your company increases in dollar volume, factoring automatically increases to meet the need of a company to grow.

One of the most frequently overlooked means of finance is in the paper assets. If your company does business with other companies or the government, and has to extend 30-day terms, there is a paper asset that can be accessed to help your company temporarily until being able to qualify for less expensive conventional financing.

Accounts Receivable financing or factoring is a process wherein a factor advances a percentage of an invoice almost immediately after the invoice has been sent to a client. As soon as products and services have been delivered and invoiced, that invoice becomes a paper asset. The factor buys the invoice because it is an asset. Usually a factor keeps about 20% reserve until the invoice has been paid by the client. Once the invoice has been paid, the factor pays the remaining balance minus a discount fee.

The company does not increase debt by factoring invoices. When a factor advances money against the invoice, he is buying the invoice. Factoring does not go on the balance sheet as a debt. The total amount a factor can advance increases automatically as the business volume increases. An increase in the need for a line of credit is not necessary inasmuch as the amount that can be advanced increases automatically.

While factoring is more expensive than conventional loans, one should consider factoring as a time-sensitive and transitional means of financing the business. Eventually, the company should be able to transition from factoring to conventional loans.

Some companies have factored invoices and later became Fortune-500 companies. There are two reasons to consider to determine whether a company is eligible for factoring:

1. The business can show the potential for growth and success. 2. Clients have a good credit rating.

The clients are ultimately responsible for paying the invoices so it is important to the underwriters of factoring that the client have good credit. So it is really more important to the factor that the client rather than the business have solid credit.

There are many industries that have benefited from factoring including manufacturing, construction, trucking, medical, temporary employment agencies, government suppliers and many others. In most cases, there is a factor willing to advance money to any industry if the factor is familiar enough with that industry. Some factors specialize and only offer funding to one specific industry.

Factoring is an important consideration as it is important for a business to have access to immediate cash.