Factoring is a Short and Long Term Solution

by: Kristin Gabriel

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Date: Wed, 28 Jul 2010 Time: 3:26 PM - 0 comments

Invoice factoring offers both shorter and longer term solutions to small businesses during economically challenging times. Unlike a loan, it does not appear on the balance sheet, plus it's fast and efficient. Accounts receivable factoring is one of the best financial services for small business to survive until the recession ends

Some smart small business owners remain optimistic because they know that accounts receivable factoring can help keep their businesses running until the economy begins to improve.

Basically a "use it as you need it" funding option, single invoice factoring -- factoring one invoice at a time - means each purchase is a separate transaction and does not form part of a portfolio lending approach. The transaction is modeled as a buy-sell transaction. The accounts receivable factoring process includes:

1.Due Diligence - A factoring company undertakes a thorough due diligence program that typically takes about 24 hours.

2.Review Invoices - Once the due diligence is completed, the client is at liberty to offer invoices to the factor for purchase.

3.Credit Verification - Upon receipt of the invoices, the factor will check the credit of the debtor named on each invoice and make sure the sale represented by each invoice has been satisfactorily complete.

4.Debtors' Notification - Once credit has been verified, each debtor is notified of the purchase by IFG and the client is paid for the invoices.

5.Debtor Payments - At the end of the credit period the debtor will make payment directly to the factor thus completing the transaction.

In February of 2010 the government began a mission to identify how to improve credit access for small firms. Small businesses account for about 60 percent of job creation. Unemployment is still high, even as the jobless rate edged down to 9.5 percent in June, from 9.7 percent in May.

small business owners need cash in order to sustain and grow. They need funds to hire employees, pay bills, purchase equipment and supplies.

Factoring is one tactic that many companies have discovered can help them to stay in business and weather the economic storm. This alternative funding strategy enables companies to get short-term working capital and improve cash flow and grow their businesses.

Many companies don't get paid immediately for delivered products or services, ao factoring benefits businesses that do not get paid for 30, 60 or 90 days by advancing up to 90 percent against the company's invoices.

Factoring companies purchase selected invoices at a discount. Factoring companies first typically look at the creditworthiness of the client's customers, and they do not expect to buy 100 percent of a company's receivables, so there are no minimum or maximum sales volume requirements.

These facts are all that much more reason for small businesses to seriously think about invoice factoring. Factors have long been providing financial resources such as factoring to businesses in need, whether it is their entire accounts receivables factoring or single invoice factoring, also known as spot factoring, when cash is needed during a time of stress.