 |
Submitted by Daren Puente
| RSS Feed
| Add Comment
| Bookmark Me!
Most sales to commercial clients usually carry 30 to 60 day payment terms. This means that as a supplier, you must deliver your products or services now. However, your client has between 30 to 60 days to pay you.
This creates a significant challenge for owners of small and midsize businesses. The problem is simple. Your clients want to pay you in 30 to 60 days, but you must pay rent, payroll and your suppliers now. As you can see, the math does not work. Unless you have a substantial bank account, this leads to an almost impossible situation.
If you are in this situation, it is also very likely that the bank will not be able to help you. As you well know, banks only lend to businesses that have three years of profitable operations and significant hard collateral. If you do not qualify for bank financing, your best bet may be to consider factoring.
Factoring is a business financing tool that helps business owners who cannot afford to wait 30 to 60 days to get paid by their commercial customers. Factoring provides you with the necessary funds to meet payroll, make rent and pay your suppliers on time.
As opposed to bank financing, factoring is easy to qualify for. The main requirements are that you have a profitable business with a strong roster of commercial clients. For the factoring company, your best collateral is the invoices from your strong customers.
Factoring is also easy to use. It enables you receive a substantial portion of your billings within a day of invoicing. It reduces the time you wait to get paid from 60 days to 2 days. The transaction is usually structured as a two installment sale of an invoice. The first installment, called the advance, is paid to you immediately. The advance can be anywhere between 70% and 90% of the gross value of the invoice. The remaining portion (10% - 30%) is held as a reserve to cover disputes and charge backs. The reserve is rebated as soon as the invoice is paid in full. The factoring company will charge a small fee for this service.
Factoring financing is an ideal tool for companies that are growing and that cannot afford to wait to get paid by the clients. It helps you to stabilize your financial situation and positions you for growth.
|
|
|
|
|
LinkedIn Recommendation:
 Jamie Pratt - Market Developer at Turboware - Teo helps me with the daily management of my customers' social media accounts. He has an entire system dedicated to social media management, and it is easy to use, provides easy reporting and allows me to communicate with my customers through the system - they can log in and participate. I haven't seen anything else like it on the web. It's not available to the general public, yet - I was one of the beta testers, but if you need something like this, just ask Teo and I am sure he will send you some details. Great system! - March 19, 2012, Jamie was Teo's client |
|
Featured [Business] Articles:
|
|
