Increasing Cash Flow
Cash flow is not only the driving factor that determines a company’s success, it is also required to pay your employees, pay the bills, and fill the inventory shelves. Nevertheless, a company can suffer a cash flow gap that can put its daily operations under serious damage. The problem with bank lenders is that they focus on a company’s creditworthiness, therefore it may be more challenging and take longer to get a loan. In simple terms, factoring is selling the value of what your customers owe you before they pay it. This can be extremely beneficial because you generate cash immediately by selling your invoices.
The Process
When facing a cash flow problem, a company may sell its invoices or accounts receivable to a factor. The factor then checks the solvency of the billed customer and proceeds to advance around 70%-90% of the invoice amount. It usually only takes about 24 to 48 hours for a factor to receive the invoice and put money in the hands of the company. After the bill is paid the factor cancels the balance and subtracts a factoring fee. Although factoring can be quite pricy, it is favorable because it also takes the responsibility for collecting customer debt. Additionally, factoring is a sale of invoices, therefore it frees your company of more debt. Another advantage that factoring companies bring to the table is that they have experience dealing with international suppliers and buyers.
Each year, factors account for billions of dollars in invoices and accounts receivable. It is important to be prepared and to be knowledgeable of your cash flow before dealing with a factoring company. If your business is suffering cash flow problems but growing rapidly, or is carrying an undesirable credit history, then enquiring with a company like ACS Factors may be a good idea for you.
