How to use factoring to finance your business

Obtain business financing is difficult when the economy is doing well and almost impossible when the economy is bad. There is a reason for that lends money to a business is considered risky, especially for financial institutions. For this reason, most institutions are asked financial statements and insist that your company must have good collateral. What qualifies as good collateral? Usually, real estate, machinery and debtors in some combination. In addition, institutions also want to see a multi-year track record in which the company shows a substantial growth.

But - what if you have a startup? Do not have hard collateral? Or, what if your business is in a turnaround situation? Usually, we're outta luck. Fortunately, there are other options.

There are alternative business financing solutions that can work well in many cases. For example, say that your business customers take 30 to 60 days to pay their bills. This can create a challenge to most companies. If you can not get a traditional loan business, a good alternative is to use factoring. Factoring, which has been gaining traction recently, offers an advance against your slow paying invoices. It provides working capital you need to pay business expenses and eliminates the challenges waiting for payment.

Here's how it works. Let's say you sell a product (or service) and then the client waits for payment of the bill in about 45 days. A factoring company may advance approximately 80% of what is owed to you a few days of billing. You can get the remaining 20%, less a service fee, once the customer pays the invoice in full.

Put another way, you get about 80% immediately after billing, and the remaining 20% ​​(less than the maximum) when the customer actually pays.

For most of the companies, obtaining an advance of 80% marks the difference between being able to run the company and going out of business. It provides cash to pay employees and suppliers in a timely manner. For many, it allows them to take new clients without worrying about their payment terms.

Factoring companies consider bills from the customers credit vouchers worth a good side. This allows them to advance money against them. Now, this does not mean that this is the only criteria that you look. Most factoring companies will want to make sure that your business is free of judgments, lawsuits and liens.

A major benefit of invoice factoring is that it works very well for start-ups. Most factoring companies are happy to work with clients whose main activity is a good roasting of paying customers....