Companies Most Ideal For Purchase Order and Invoice Financing.

Companies Most Benefited by Factor Invoices & Purchase Orders

 A company that is expanding

 A business strapped with a lack of positive cash flow

 A company doing business to business invoices or invoice to government invoice or purchase orders

 A business that does not want to incur more debt

 A need for an increase of funds automatically as the company grows

 Has been turned down for a commercial loan at the bank or loan institution

When a business offers net-30 day invoice terms, it is a common way of offering a unique interest-free 30-day loan. It is usually not the intent of a company to extend loans but has to in order to be competitive. One way a business can increase sales is to offer a 90-day-same as cash. However, most of the 90-day same as cash is offered for consumer credit rather than business to business.

Offering terms often creates cash flow problems. When a business does not have the cash on hand or the credit to capitalize, factoring can become a viable means of offering the capital needed for the business to continue to operate and grow.

One of the problems with offering terms is that not all companies pay within the 30 days offered in the terms of the invoice. Thus, the business has to have enough capital to finance the invoices for 45, 60 or even 90 days. When this creates a cash flow problem, it is difficult to take on new or additional orders needed for the company to be able to continue to grow and flourish.

When a company is able to acquire commercial loans, it is often necessary to make application for additional funds when the company grows. Once a company starts factoring, the available funds increase automatically as the business grows. It is as though the company has a debt-free line of credit. It is a debt-free way of financing because it is not a loan. Rather, it is the sale of an asset. It does not adversely effect the balance sheet.

Whenever a business accepts credit cards, it is participating in factoring principles. When a company accepts a credit card for payment on an invoice, the company receives the payment minus a discount almost immediately. Factoring is similar except a reserve is held until the client pays the invoice. Invoices are paid within 24-36 after an invoice has been submitted. After the client has paid the invoice, the business is paid the other twenty-percent minus the discount. Thus, a company accepting credit cards is paid in one installment whereas a company factoring invoices is paid in two installments. Another difference is that factors only finance business to business or business to government invoices.

Factoring should always be considered a temporary way of financing until the company is able to qualify for more conventional loans. In some cases, a business is able to obtain factoring when the business has filed for protection under Chapter 11 in Bankruptcy court. Conversely, several Fortune-500 companies have used factoring as a transitional means of growing their businesses. Factoring is not just for companies in a crisis. A careful analysis of the company's cash flow needs should be made to determine the viability of factoring invoices or purchase orders. A company must have adequate markup in order to be able to utilize factoring.

There is a lot of flexibility in factoring inasmuch as not all invoices have to be submitted each month. In some cases, a company may determine it is most beneficial to factor only invoices not paid within 30 days. It is more reliable than to count on payment from factoring than to try to determine what companies will pay after the 30 days particularly if the client is a new customer. Government entities are notorious for requiring more than 30 days in the invoice cycle.

It is difficult or even impossible for a company to grow with a negative cash flow. It is most important to consider cash flow as a high priority so a business to be most successful. Companies grow only when the cash is able to flow.