Thursday, October 9, 2008

When Is It A Good Time To Opt For Business Factoring

The following conditions can provide you with hints to estimate the right time to opt for business factoring. You may be hoping for a way to unlock your money that might be locked until due date of your invoices. When you run a business that caters to a lot of credit clients, there are times when you need ready cash to meet your daily expenses or even to fund your expansion plans.

If you have quality clients, providing a credit period of around 30 to 60 days and provide a high volume of business to your factoring company, then you could get away by parting with a very reasonable factoring fee. This could immediately put an end to your cash flow woes and you could meet all your expenses. These factoring companies can purchase your credit invoices and wire that invoice amount to your bank account within 1 or 2 days minus their factoring fee, which could be in the range of 1.5% to 5%.

If you find that you have supplied your products or services to reputed clients and even earned a high profit margin, but are unable to arrange for timely finance to meet your regular expenses, then business factoring could be the ideal solution. When Your Cash Flow Is Choked.


When Banks Do Not Give You That Loan. If you find that banks are not willing to advance you any loan due to non-availability of collateral or guarantees, then business factoring could help you. If you are a start-up company, then you will not be able to provide the mandatory 3-year financial statements that banks usually require. You will also realize that banks will only loan you a fixed amount for a fixed term and you will need to pay back the loan within that period in fixed monthly installments. If, during that period, you require some additional funds, then you may find yourself in a quandary.

Angel Investors or venture capitalists might provide much-needed funds, but they come along with their own set of conditions. But on the other hand, business factoring will provide you the funds against invoices that have already been issued. Thus, if your invoice amounts are large, then the amount you receive will also be substantial. The beauty of business factoring is that it will grow along with the volume of your business. You do not have to worry about any monthly installments or penalties for late payments.

You can also go in for bulk purchases that would further reduce your purchase costs, thereby leading to higher profit margins. Business factoring can provide these funds and you could thus be able to cater to larger orders. If you do not have ready funds then you could be financially crippled and end up frustrated.

You will require additional funds if you want to expand or cater to large orders. When You Want To Expand Your Business.


Thus, if you feel that the above factors are restricting your business, then go in for business factoring to improve your cash flow and expand your business. If you have a reputed credit client list and are supplying products maintaining good profit margin, then you could opt for this flexible financial option that has the ability to keep up with your increasing business needs.


2 comments:

Sarah Q. October 24, 2008 at 12:46 PM  

Interesting post. I want to run a business soon, so I'll keep this post in mind. Becoming, what I hope, an entrepreneur is somewhat new to me, so I can use all the help and advice I can get! I know it'll be tough. Lately I've been thinking about the idea of buying a business instead of starting from scratch. I'm not sure what I should go for. Franchise? Home-based? I don't know. Do you have any suggestions or advice? Thanks!

Eliza Silva October 27, 2008 at 7:34 AM  

@Sarah - Never give up, but don't keep at it if your heart isn't it. That's my advice. It's definitely hard right now, but with enough determination you can still be accomplished. Also, don't forget due diligence! That being said, if you're looking to buy a business, then it's best to know what's even available in your area. There's this site called BizTrader.com, which is this online global marketplace where you can buy or sell a business. If you want, you can even invest in a business. I also suggest checking out any small business groups in your area. They should also know the ins and outs of conducting business where you live, or plan on doing business. Good luck!

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