It can be a key challenge for any business owner to wait 30, 40 or even 60 days to get invoices paid. Even though the work has been completed and delivered, the payment will come in weeks. However, the business has to pay employees, rent and regular costs. But it won't be a main problem if your business has a considerable cash reserve.
Unfortunately, your business may not have considerable cash reserve. But in many cases getting a business loan is not helpful. What is the reason? Unless the business owner has good credit and can prove three years worth of gainful business operations, getting a business loan is almost impossible. And another alternative that is quickly gaining popularity involves factoring invoices.
With factoring financing you can reduce the payment wait and get your invoices paid in as little as two days. It also helps you to eliminate the uncertainty of when you'll be paid, which allows you to better manage and grow your business. It is easy to get receivables factoring. Besides, it can be set up in days. In addition, if used properly accounts receivable factoring can work better that a business loan.
The following is how the factoring invoices works:
1. The first you have to deliver goods/services to your client.
2. Then you sell the invoice to the factoring company.
3. The factoring company pays you the 1st installment which can be as much as 90% of the invoice.
4. And once your customer pays the invoice, the factoring company rebates you the 2nd installment, less the fees.
Nevertheless, the biggest requirement to qualify for factoring is that you do business with customers that pay reliably. And the cost of factoring will in large be determined by the volume of financing and the paying quality of customers. In general, the cost will range between 1.5% and 3.5% per month.
There are no arbitrary limits or ceilings placed on your financing line. And this is the biggest benefit of factoring. This type of financing has no maximums and your factoring line will grow with your sales, provided you sell products to good paying clients.
Looking for a reliable way to finance your growing business, think over using a factoring service. You will see that it is the best way for you to get loans.
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