Immediate CAsh for Businesses as Though an ATM

Some companies found out there were people who were willing to give up a fee in order to get cash immediately so automatic teller machines started showing up in convenience stores and other locations where there might be need for immediate cash. Wouldn't it be nice if a business needing cash could take an account receivable to a machine and get badly needed cash for business operations and expenses?

The fact of the matter is invoice factoring works a lot like a teller machine. Once an invoice is submitted to a factoring company, an advance is paid almost immediately to the business. After their client pays the invoice in full, the rest of the balance is paid minus a discount fee. In cases where a company has an immediately need for cash, the time-value of money is that less money today is worth more than all of the money in the future.

Factoring companies are established to buy future payments. Most invoices are on a thirty-day cycle. When companies work with slow-pay customers including government entities, slow-pay invoices create a cash flow problem for the company. Factoring invoices is a way of solving time-sensitive cash flow issues until the company is able to grow out of the need.

Many businesses have shortage of cash while expanding the growth and volume of business. Factoring is an alternative finance method of temporarily solving the cash flow shortage until being able to qualify for commercial loans from conventional finance sources. Factoring should always be considered a time-sensitive and temporary source of financing a business.

Several Fortune-500 companies have used factoring as a means of growing their companies. Once they are able to finance through banks and/or other conventional loan institutions, they do so in order to acquire money at less expense.

The application process for factoring is quite simple. The underwriting at factoring companies is able to get back to potential clients within a couple of days or less. They are mainly concerned that the clients a company deals with are credit worthy. When a company is doing business with the government, they will usually get paid but it sometimes takes more than thirty days for the government to pay. Factors consider companies somewhat pre-qualified when invoicing government entities.

Acceptance of credit cards by companies involves the basic principles of factoring. When a business accepts credit cards for payment of an invoice, the invoice is paid almost immediately by the credit card company minus a percentage of the face amount of the invoice. The percentage is determined in part by the amount of dollar volume the business does in credit card transactions.

Factoring works much the same way except there is an advance followed by payment in full. Thus, factoring involves two installments instead of one as compared to credit card payments. In both cases, the client is the one having to be credit worthy in order to be eligible to purchase the products and/or services. The credit card companies collect from the credit card holders and the factoring companies collect from the clients of the business benefiting from factoring.

The available cash grows as the company grows thus eliminating additional application for more money. The dollar volume of invoices Thus, the amount of available cash is greater once the company expands.

After the company benefiting from factoring submits the required paper work, funding usually takes place in about ten days. Thereafter, advances are sent with twenty-four to forty-eight hours. Factoring companies also help their clients determine the creditworthiness of their customers thus eliminating some risk.

To offset the cost of factoring, companies can quit offering early-pay incentives to their customers and take advantage of early-pay incentive with their suppliers.

It is important for company managers to understand the company's cash flow needs. There is a lot of flexibility in factoring invoices to finance positive cash flow.

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