Cut Out the Wait with Accounts Receivable Financing

When a business needs to raise capital quickly or to improve cash flow without going into debt, it may choose to engage in a process known as accounts receivable financing. Also referred to as simply factoring, accounts receivable financing allows a business to get the money it needs without having to wait for a long period of time.

In the business world, collecting on accounts can take a very long time. In fact, it is not unusual for it to take 30, 60 or even 90 days to collect payment. With accounts receivable financing, businesses can get the funds they are expecting right away rather than waiting for the payment to be made. While the business does lose some money because these invoices are sold at a discount, it brings the money in right away and allows the business to maintain the cash flow necessary to keep the business running. Furthermore, with the help of accounts receiving financing, businesses can take control of their funds rather than being at the mercy of their customers.

Unlike a business loan or other options for borrowing money, businesses can get the money they need within 24 hours when they choose accounts receivable financing. This is partially because the factoring company does not need to perform a credit check or other paperwork. Rather, the factoring company simply ensures the credit worthiness of the debtors and then takes on the responsibility of collecting on the invoices that have been purchased.

In general, the first step toward factoring accounts receivable is to build a schedule of the invoices that require funding. After the company submits this information to the factoring company, the factoring company verifies the invoices and checks the credit quality of the debtor or debtors. After the factoring company verifies the necessary information, it pays the company 70 to 90 percent of the value of the invoices. The factoring company then notifies the debtors and request payment to be made to the factoring company rather than to the original company.

It should be noted that the percentage that the factoring company pays to the originating company is dependent upon the credit worthiness of the debtors. If the debtor’s credit is somewhat shaky, the factoring company will advance an amount that is on the lower end of the spectrum. Regardless of the amount that is paid in advance, the originating company will receive more of its money after the debtor has paid the invoice. Of course, the amount received will be less than the full invoice value, as the factoring company will take out a fee before the remainder of the funds to the originating company.

Learn more about invoice factoring.

Exploring the Pros & Cons of Inventory Financing

Are you searching for a way to get the extra money your business needs to get through a tough spot or to expand and grow? If so, you might be thinking about getting the money you need through inventory financing. With inventory financing, a business can use its inventory as collateral in order to obtain the money it needs. In some cases, assets such as accounts receivable may also be used to secure an asset-based loan. Still, before you take out an asset-based loan, it is important to explore the pros and cons of this type of loan in order to determine if it is the right type of loan for you.

Pros to Inventory Financing

The obvious pro to inventory financing is the fact that it provides a business with the cash it needs to remain operational or to expand. In some cases, a business may need the money to pay for regular expenses, such as payroll, fuel, rent or electricity. When money is tight, inventory financing can free up the money that is necessary and can be used in a way that is similar to a revolving line of credit. In this way, the business can continually grow and to stabilize.

Cons to Inventory Financing

One of the cons to inventory financing is that these loans are typically short-term and often have to be repaid within one year. Therefore, any business that is interested in inventory financing needs to be prepared to come up with the necessary funding to repay the loan in a relatively small amount of time.

Another downside is that many banks are unfamiliar with inventory loans. Therefore, finding a lender who is willing to provide this type of a loan can be a challenge. Still, as with any loan, it is always a good idea to research a variety of different lenders and business loan managers before deciding on the lender that is right for you.

When researching lenders, you will likely find that most consider inventory financing to be a high-risk loan. This is largely because the value of inventory is difficult to assess, particularly since some items may command a high price tag for a period of time before interest dies out. Furthermore, merchandise can be stolen or damaged, which will reduce the overall value of the inventory. For this reason, some lenders may be reluctant to provide this type of loan or the loan may include some unattractive terms and conditions. For these reasons, it is important for a business owner to decide whether or not the risk to the business in obtaining an inventory financing loan is worthwhile.

Learn more about inventory financing at Republic Funding.

Free Up Cash Flow with Invoice Factoring

Business owners who are looking for a way to free up capital or to obtain the money necessary for emergencies and expansions may turn to invoice factoring for help. With the help of invoice factoring, a business does not need to wait the typical 30 to 60 days before receiving payment on an invoice. Rather, the business owner receives the money immediately. Of course, there are pros and cons associated with invoice factoring. Therefore, business owners should be sure to evaluate their situations carefully in order to determine whether or not invoice factoring is right for them.

The biggest downside to invoice factoring is the fact that it can be quite costly. In fact, invoice financing solutions typically keep anywhere from 10 to 30 percent of the invoice total. For businesses that are in an emergency situation, however, the loss may be acceptable. The same is true for a business that has a great opportunity for expansion that cannot wait until the invoices are paid.

Before a business decides to engage in invoice factoring, it is important to consider the economic conditions within the industry. Just as with any investment, an early cash-out on invoices could be a mistake in the long-run if it results in a lack of future capital. On the other hand, for businesses that need money in a couple days, invoice factoring offers a good alternative to obtaining a traditional loan. After all, it can take several weeks for a traditional loan to go through and obtaining one requires creating a business plan and having a good credit score. With invoice factoring, the funds are generally available within just 2 to 4 days and no credit check is required.

While invoice factoring is similar to obtaining a bank loan in that it provides the business with the capital it needs, it is also quite different from a loan. This is primarily due to the fact that invoice factoring involves the actual purchasing of a financial asset rather than providing a loan that must be repaid over time. Since invoice factoring does not involve borrowing money, however, the business does not take on any debt when choosing this option. Furthermore, the business does not have to worry about making regular payments to the bank.

In short, invoice factoring provides businesses with a quick way to obtain money without having to go through the hassles of obtaining a bank loan. Whether or not it is worth paying the fees associated with the process depends entirely upon the company and its needs.