In these tough economic times, bank lines of credit and small business loans are becoming increasingly hard to find. Some sectors have seen credit availability drop more than 30%, and existing lines of credit are being capped or closed without warning. These are especially bad omens for businesses hoping to increase their working capital through small business loans. Suddenly, small businesses that relied on credit backing to compete with large corporations are charged with finding their business capital through other avenues. Luckily there is a light at the end of the financial tunnel, and new/alternative forms of financing such as accounts receivable financing (factoring) are filling the void.
Invoice factoring, or the sale of accounts receivable for cash, is an ideal and even preferable substitute to traditional bank lending. In advance factoring, the business owner sells his receivables in the form of an invoice to the factor at a discount rate. The factor collects the full amount from the customers that owe the business in due course and pays the balance amount due to the business owner after deducting his commission and other charges. In maturity factoring, the factor makes no immediate advance on the purchased accounts;but sees to it that the customer pays the invoiced amount within the stipulated time i.e. on maturity. However, if the customer fails to make payment within the stipulated time, the factor makes payment to the client and proceeds to collect the payment from the customer.
Factoring companies are usually willing to assume more risk than traditionally cautious banks. While a customer must demonstrate a regard for his financial obligations, factoring companies don't require as long of history of good credit as banks often do. This is particularly good news for new businesses who haven't yet had the opportunity to build up a credit history but who need cash on hand to succeed.
When a business needs working capital, it generally needs it as soon as possible. With that in mind the application process with a factoring company is usually much quicker than with a bank. Whereas the processing of a bank loan could take months, factoring companies can process your application in a short time span ranging from two days to two weeks. This quick turnaround time allows small business clients to increase their cash flow when they need it most: in the present.
Invoice factoring companies also offer a number of services banks and traditional lending institutions do not. For example, credit services are available to check a future client, which helps to eliminate bad debt. Factoring companies can also assume collection management duties for you and offer back office support; allowing you to reduce collection and administrative expenses while improving your efficiency and bottom line. Best of all, because you are selling your accounts receivable, factoring is not a loan. This means that unlike a traditional loan, you won't be incurring debt while improving your working capital. Factoring companies are clearly one of the most accessible forms of financial backing in the corporate sector today.
Founded in 1969, Riviera Finance is a nationally recognized leader in the commercial finance industry. For over 30 years, Riviera has assisted growing companies with their financial needs through Factoring of Accounts Receivable.
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