Factoring Financing: How to grow your business without debt or loans
meet the financial criteria of traditional lending institutions. However, many small businesses have a roster of financially strong customers that can be leveraged. Factoring empowers businesses to capitalize on their customer list, and provides them with a tool to transform outstanding receivables into immediate cash, without generating debt. Since Factoring is not a loan, it is an ideal financial product for the following:
- New and emerging businesses including small and home businesses, consultants and or https://npfinancials.com.au/solo-preneurs.
- Businesses with financially strong customers
- Businesses that are preparing to grow significantly
- Business with intangible assets (e.g. consultants)
- Businesses that do not want to take a loan
An additional benefit of factoring is that the factor usually assumes part of the clients’ credit risk for the customer. This means that if the customer becomes financially insolvent due to bankruptcy and does not pay the invoice, the factor will assume the loss. This is a critical service for small companies who may not be able to afford the bankruptcy of a customer.
Costs
The costs of a factoring transaction – also known as the discount – vary based on a number of variables such as the financial strength of the customer and the amount being factored. Generally, the discount is a percentage of the invoice’s face value that increases with time until the invoice gets paid. Small businesses, those that have between $20,000 and $300,000 in yearly revenues, can expect to pay a discount rate of about 2% for every ten (10) days that the invoice remains unpaid. Businesses with factorable revenues in excess of $300,000 can expect lower discount rates.
Factoring at Work: Business Services and Products, Inc. Case Stud
