Does your business need cash now? Most small and medium sized businesses have a constant need for cash because when they invoice a customer for a product or service, the customer can take a long time to pay which results in reduced cash flow.
Factoring or accounts receivable financing has been around for a long time and has been used by many businesses to address their cash flow problems.
Factoring involves selling an invoice to a third party (factoring company) at a discount. For example, if you have an invoice due to you for $5,000, a factoring company will advance you $4,650 today. Once the invoice has been paid by your customer, the factoring company will calculate interest for the amount of time you had the advance and will deduct it from the proceeds. If the invoice was paid interest might be $125 so after deducting the advance of $4,650 and $125 from the $5,000 collected, your business is then given the balance of $225. Factoring is a loan against a specific invoice or a group of invoices.
The fees and interest rates charged will vary greatly from one factoring company to the next. As well, factoring companies will have their own criteria for the amount of each invoice they will advance and the invoices they agree to advance on. For example, if you have a customer that is a large company it will be easier to factor their invoice compared to a small company.
If you would like to access cash for your company, click here to complete a short application.