B2B Markeplace

Given today’s economic condition, many companies will really face cash flow problems in the start-up phase. Others, on the other hand, have issues with cash so they cannot grow their business.

Improving your cash flow in the year 2010 should be a main concern, as well as collection efforts or even getting professional assistance with financial forecasting. But there is one strategy that works every time: accounts receivable factoring.

When these options aren’t sufficient, factoring can help. For any company strapped in cash, selling accounts receivables or invoices to advance funds is a good and reasonable idea. After all, you could always make use of the money now (rather than waiting for 60-90 days) to buy supplies and keep the business running.

Factoring does come with a price, but in the growth stages of a small business, it’s better than a loan. Factoring companies will charge you fees as payment of availing of their services.

Here’s how accounts receivable factoring operates: first, the factor, such as The Interface Financial Group (IFG) will want to examine your invoices and also check the creditworthiness of your customers. Then, you should be ready with these documents: current financial statement, accounts receivable aging report, certificate of incorporation or partnership agreement, proof of insurance, invoices and other relevant business documents.

Because it is the factoring companies that will take on the responsibility of collecting the receivables, they want to protect themselves and ascertain that the invoices will be paid on a timely fashion. Once you know which invoices the factor will purchase, the factor will normally pay you in as little as 24 to 48 hours.

For instance, the factor might pay you 80 percent of the total amount of your invoices and then reimburse you the other 20 percent when your customers pay their invoices. They of course, will subtract their fee.

The price of this type of financial solution ranges anywhere between 3 and 7 percent of the total amount of the invoices. Fees shall of course vary, depending on the size of the invoices, the creditworthiness of the customers, and the number of days in your cycle, to name a few.

Bear in mind,however, that not everyone will benefit from accounts receivable factoring. For one, it is limited to B2B organizations. Second, interest rates are almost always larger than those imposed by traditional bank loans. But, since a large percentage of factored invoices are paid for within 90 days the total amount of interest paid is generally smaller than that of a longer term bank loan.