Strapped for Cash? Try Factoring to Improve Cash Flow
Not having sufficient cash flow when you need it can greatly affect your business. One way to overcome cash flow issues is factoring. This is an alternative lending practice that has enabled many businesses to stay afloat, as well as to expand their operations. If your business is strapped for cash, you might consider the benefits of this practice as a lending option.
What Is Factoring?
This useful lending method is actually one of the oldest forms of business financing. It may also be referred to as invoice factoring, accounts receivable financing, and accounts receivable factoring. The practice involves a lender (known as a factor) buying and then collecting the accounts receivable for another business.
Once the factor purchases the invoices, they advance cash to the borrower based on those accounts receivable. Generally the amount advanced is about 75 to 80 percent of the total of the invoices purchased. Once the accounts receivable are paid in full by the business’ clients, the factor pays the remaining amount minus a fee. The fee is usually about 2 to 6 percent of the total of the invoices.
When a business receives a cash advance from a factor, the arrangement is beneficial for both parties. The factor profits from charging a small fee for the service. The business selling the invoices benefits from creating cash flow immediately.
This arrangement can also help a small business to get started. Many new business owners may not qualify for bank loans. By working with a factor instead, an entrepreneur can build a small business.
Is factoring the right choice for your business? Talk to a representative of 8th Street Capital about this convenient financing method. There are also several other alternative lending practices that might be ideal for your business, so don’t hesitate to contact us for more information.