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Introduction
The purpose of this article is to familiarize
business owners with a kind of financing that is
unfamiliar to many people, Factoring. I will
explain, in a simple yet comprehensive way, how
to improve your company's cash flow. You may then
decide if using the Factoring approach is a sound
business decision for your particular situation
and needs.
The Life Blood of Every Business
If we were in a room full of small business
owners and asked them all, "What is the one thing
your business needs the most in order to survive
and grow?" we would probably get a variety of
answers: "a needed product or service," "a solid
base of loyal customers," "a well-prepared
business plan to chart your course," "a good
location," or "effective marketing." All true
answers. But in addition to these, there is one
need central to every business - that is the need
for available CASH. This is where factoring or
accounts receivable financing comes into play.
Cash to business is like fuel to a car. You need
to have enough in the tank to start the engine
and you need to maintain enough in the tank to
keep it running. Now the car (your business) will
take you where you want to go. If you run out of
gas - cash on hand - at any point along the way,
well…we all know what will happen.
Where can a business owner obtain the cash he or
she needs? Banks, venture capital, private funds
of the owner, friends, and relatives are the most
common places in turn. However, banks usually
want a minimum of two or three years' worth of
business financials before they'll give a loan.
Venture capitalists want part ownership of the
business. Not being in business long enough or
not being profitable enough to satisfy the banks;
and not wanting to give up any ownership; and
with private resources already tapped, the
business owner may be stuck. "Where can I find
that cash to grow my company? I have a good
business with loyal customers, I'm profitable or
would be with enough cash to fuel the engine; I
just need to get over this hump of not enough
cash flow. What can I do?"
The answer to this question may be right under
your nose and you don't even know it. If you have
accounts receivable with good, solid customers
who are credit-worthy, you have something with
intrinsic value that other business owners are
interested in buying. The cash that can be
obtained for your good receivables can be exactly
what you need to get over a cash flow crisis.
By selling something you own - your receivables -
you're not generating any debt that must be paid
back; and you're improving your credit stature
because you're converting assets (invoices) into
immediate cash. That cash can enable you to save
further by getting volume purchase discounts,
discounts for cash, create market opportunities,
or hire needed staff. And most of all, you can
start new and expanded production without waiting
for earlier invoices (sales) to be paid.
Setting accounts receivable at a discount is a
means of financing called "factoring" or "
accounts receivable financing." It's been around
for centuries and is a billion-dollar industry
for large businesses today. And it is growing
rapidly in popularity with small and medium sized
companies. Factoring not only has saved countless
businesses from going under, it has provided many
more businesses exactly what they need to grow:
cash to fuel the engine.
Further Benefits of Factoring
Selling accounts receivable puts you in control
of your business like no other form of financing.
You control the discount by specifying when the
advance is to be made. You can space the advances
to create a steady flow of cash. If you don't
need cash now, you can wait to receive the
advance and save on the discount (waiting on an
advance creates a line of credit).
What's more important to realize is no debt is
created, you have no loans to pay off, you create
and keep a cleaner financial statement, your
access to cash grows with your business sales,
and there is no need to re-apply. Finally, you
can stop factoring at any time. There are no long
contracts and you only factor the invoices you
want. YOU are in control.
Conclusion
Invoice factoring is filling a tremendous void
that banks have created. Companies accelerate
their profit and thrive whether you are a start
up or established business.
Factoring requires, less paperwork than loans
and no credit or reference checks of your
business and is also faster than tradition bank
loans..
Invoice factoring offers bussinesses tremendous
growth opportunities to assist in the management
of cash flow and delivers working capital for
your business needs.
If you are seeking an invoice factoring company,
then Diversified Financial Services is the smart
choice. Our Financial Consultants are ready to
answer any factoring questions. Call today 800-
954-0012.
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