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Financing Your Small or
Mid-Size Business Through Accounts Receivable Factoring and Seaside
Factors
What is Factoring?
Factoring is certainly
one of the most powerful financial tools available to small and mid-size
business. This is especially true for young businesses in the start-up
phase where more typical sources of working capital are denied by
traditional lenders. For such young businesses, factoring not only acts
as a mechanism for finance, but it also allows entrepreneurs the ability
to separate themselves from their competition and truly grow their small
and mid-size businesses at exponential rates.
The true power of factoring is in
its simplicity. In its most common forms, it is simply a financing
accommodation which once employed, allows your company to grant its
customers attractive terms of payment on invoices for services performed
or products delivered. These terms are often 30, 45, or even 60 days
and are a welcome accommodation and extension of credit that your
competition often cannot match.
Though granting such attractive terms can cripple many small
businesses and cause serious cash flow problems, this is not true for
those savvy entrepreneurs employing the services of a factor. With
factoring, you simply submit your invoices daily or weekly for an
immediate cash advance. Your factor (rather than you) then waits for
payment from your customers while you focus on the more important
issues, such as generating new customers and business.
Other Features of A/R Factoring
Factors
are very much like mirror-images of more traditional lending
institutions like banks (although many banks offer factoring services).
Because they are not lenders but actually purchase your accounts
receivable as your business creates them, they have a secondary interest
in your established borrowing history, credit scores, and personal
guarantees.
In reality,
factors are much more interested in the creditworthiness of your
customers, the businesses that will make payment on your invoices, than
they are with the credit reports on you and your company. This is why
factoring is such a valuable tool for businesses under 5 years old that
may be considered un-bankable simply because of a lack of credit
history.
Because factors
purchase your accounts, they also perform valuable services for your
business in the areas of accounting and collections. Factors provide
expert accounts receivable management, collecting your outstanding
balances, providing you with detailed aging and collection reports and
customer credit evaluation when required. Many will additionally provide
your customers with detailed monthly or bi-monthly statements of
account. There are many additional
benefits of factoring.
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