If you run your own business, there is nothing worse than having to wait thirty days or more to get paid on a job you have already completed. The good news is you can now have your money paid to you within 24 hours. The bad news? It's going to cost you some money in order to do it.
When you run your own small business, your company depends on your customers making timely payments to you. Unfortunately, you may find that during certain times of the year it is hard for you to collect on your work. Even if your business is bursting at the seams, you may not be able to find the necessary cash to continue funding your operation.
This situation can lead to some poor choices. For example, your suppliers may become discontent with your payment schedule so you lose out on some amazing opportunities. Your employees can get frustrated if they don’t receive their paychecks on time. Not making payroll on time will lead to a loss in productivity and higher turnover. In other words, when you do finally get paid from your customers, you may not have anyone to supply your business AND no one to do the work!
Should you need cash up front, what are the alternatives?
There are a number of ways for you to get more cash into your business:
* Inject personal funds.
* Find a new investor.
* Use an overdraft on your account.
* Apply for a bank loan.
*Sell your accounts receivable.
The good news is that you don't actually have to wait anymore to get paid. One way to avoid these cashflow gaps is to set up an agreement with a factoring company.
How do you use your own money, you ask?
If you’re thinking that the money you've honestly earned is locked up in outstanding or aging invoices, think again. A factoring company can work for you and help you to unlock the cash you so desperately need for your business.
Your invoices are an asset that a factoring company can make mney from. Through factoring, you can turn your largest asset, your accounts receivable, into cash now as opposed to waiting for payment from your customers.
How do you put an invoice through a factoring company?
The process is incredibly simple. When you invoice a customer you also send an electronic copy of that invoice to your factoring company. Then, within 24 hours or less, the factor advances you up to 90% of the invoice value. The factor usually takes on the responsibility of collecting the money from your customer the day the invoice is due to be paid. After that step is accomplished, the factor pays you the rest of the money, minus a fee for their services.
For small to medium companies outsourcing the receivables management function can be a great benefit because it saves you the time burden of managing invoices and trying to collect your money. By contracting out that part of the business, you can effectively distance yourself from that function of the job and concentrate on sales.
An additional service sometimes offered by factoring companies is protection against bad debts. Typically, the factoring company would cover up to 90% of the outstanding balance on any customer, where you have a designated a protection limit in place.
Why should you consider using factoring?
Factoring is a solution that can be used alongside your standard banking. You should look for the right factoring partner for your business. Here are a few reasons why factoring should be another source of cash to consider.
*You will never run out of cash as a consequence of extending payment terms to your customers.
*Your company will not have to employ a book keeper or accountant.
*The factoring company cash flow will allow you to take up special business opportunities that require quick closing and cash money.
*You can grow your business at any pace without worrying about how long it takes to get paid.
Factoring is one of many financial tools that will allow you to obtain cash advances by capitalizing your invoices. At the same time, using a company like this may ease your workload as well. Be forewarned, there is no free lunch and these services cost money. A lot of times though, it is still cheaper than using credit cards or cash advances.