Any individual who wants to start up their company must know that there is much more to a company than just hanging out an “Open for Business” sign on the front door. There are many specifics about getting the needed funds to start up a business in addition to knowing how to run that business and gain a sizeable profit.
Business owners must be aware of the basics of construction factoring, accounts receivable financing, purchase order financing and asset-based lending. Included are just three of the main things that a business owner needs to know about before opening their company to the public.
When a company has been in business for a time and that company needs funds they can turn to factoring some of their accounts receivable to a third party. Factoring extends credit to the clients of the customers of that business. This third party pays a discounted price for the accounts. For years, companies have turned to a process called factoring to raise extra capital.
When your business sells a product or service, this creates an invoice for that sale. Account invoices within a company that does not get paid are sold out to a third party. When the customer does not pay their invoice, this account is sold to a third party. That third party pays a face value less up to six percent of the cost.
Factoring is a successful way to earn needed funds if the business cannot obtain a loan. Factoring is not a loan and creates no liability. Factoring may in some instances have a slightly higher interest rate. However, when your business does not qualify for a loan, factoring is a good system. Business owners must realize that factoring is a short term solution for obtaining needed funds quickly.
Factoring is a successful way to get your business out of a financial crisis. Any number of disasters can hit your business that calls for you to have extra money. Some of these instances can be good or bad; it just depends on your situation.
One example is sudden growth, which is a good thing. However, if you do not have the funds to meet more inventories it is not good, so you have to beg or borrow the funds to add additional stock to fill orders for the run on product orders coming in all of a sudden. Unexpected new orders are a good thing because it means your company is growing. Thus, your profits start to climb. You need a bridge to help you cross over during this growth period, and factoring is there to fit this need.
One example of a bad situation that all businesses run into at one time or another is when you have too many invoices from clients who have lagged in payments to you or refuses to pay, you can sell these invoices to third party firms and get your needed funds.
Factoring is a bridge to traditional financing. A business owner needs to shop around for a third party for factoring that knows the business and has a clear understanding of your industry.
It is common for a successful, growing company to need money for expansion and other expenses. Factoring helps the company to have a more stable cash flow through the use of invoices offered as collateral.