Since the credit crisis began in 2008, many businesses saw their lines of credit dry up – and quickly. This left many business owners without access to the funds to pursue new and lucrative opportunities. This situation in turn, led business growth to stagnate, not to mention put a severe halt on the entrepreneurial spirit.
- Did this happen to you?
- Could this have been avoided?
What if you had the benefit of Accounts Receivable Financing instead of a bank Line of Credit?
Click here to read more about the financial trading strategies to grow up startup businesses and even as banks tighten their fists, independent lenders have opened theirs to provide interim financing to small and medium-sized businesses. Factoring is one of the most promising alternative sources to bank financing.
Let’s talk a little about factoring with financial transactions gives businesses access to cash for growth opportunities or to overcome temporary cash problems. This is how it works: as a business owner, you sell your company’s account receivables to the factor (at a discount). The factor gives you the business capital you need (usually very quickly).
So what are the primary differences between Factoring and a traditional bank Line of Credit?
- The financier’s focus
In essence, Factoring means the purchase of a company’s invoice receivables. While traditional bank lending focuses on cash flow and balance sheets, Factoring focuses on the current receivables and historical cash flow, and a business’s repayment ability.
Whereas a bank may require physical collateral – a building, a life insurance policy, or some other item – factors use the collateral that encompasses your receivables instead.
- The speed of cash delivery
Factoring is much quicker – typically giving an approved business near-immediate access to cash instead of the typical 30 or 60 days required for traditional bank financing. The approval and closing of the first funding usually transpire within four to seven days. Outstanding invoices can be turned into cash in as little as 24 hours.
- Who assumes the risk?
When you enter into a factoring agreement, your company benefits from a seamless process that allows you to minimize your risks in terms of bad debt. ITC offers a proven system by which our clients receive full reports on credit information, average payment days, and default rates on every single one of the payers.
When a business owner chooses to factor, the factoring company carefully monitors the credit risk, preventing potential defaults. So you and your employees are essentially out of the heavy-duty collections work and free to pursue lucrative and exciting new business opportunities instead.
In short, Factoring can be an excellent accounting tool for the business owner who needs to eliminate tight cash flow problems.