Businesses of any size can suddenly find themselves with large contracts or big jobs that are true opportunities for growth and development of the business. However, these large projects can also create a short-term cash flow problem unless you tap into factor account receivable benefits.
There are several important factor account receivable for a business of any size to consider. Often the size of the business is not relevant to the need to use factoring. Instead, it is more a consideration based on the initial cash outlay or the need to add to staff or materials to get the job done. Since there is a gap between when you receive the award of the job and when you can expect to be paid, using factoring gives you the cash you need to continue to operate without the wait.
Credit Lines for Factor Account Receivable
Businesses taking advantage of factor account receivable services will receive funding based on a percentage of the eligible accounts receivables. In other words, the amount you will receive from the factoring company will be based on your sales.
This means that the line of credit provided is not based on the business net worth, and there is no need to go through the complicated business valuation process required with other forms of funding.
With this simple formula, a business can be approved to use factor account receivable without the complexities involved in either obtaining an SBA (Small Business Administration) or bank loan. Typically approval of an application will take 24 hours or less and funding within 3 to 5 days of approval, which is simply not possible with other funding sources.
Easy to Understand Fee Structure
While the speed of funding is certainly an important factor account receivable benefit, the fee structure also makes it a very attractive option. Unlike loans or other forms of funding where interest and fees can add up significantly, factoring charges a flat percentage based on the factor account receivable.
Each factoring company will have a specific invoicing rate as well as other potential fees. These can include collection fees, early termination fees or misdirected payment fees. The additional fees, if part of the structure, should be clearly outlined, allowing a business to determine just what they can expect to pay.
Understanding the factor account receivable benefits as they apply to your business is a simple way to see why this option is so attractive for businesses of all sizes.
At United Capital, we would be happy to explain the factor account receivable benefits specific to your business needs.
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