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Basic Invoice Factoring; A New Way to Finance Your Business?

Supplier: AR Cash Flow
04 September, 2009

How does the idea of accessing finance without getting into debt appeal to you?

Not only does this solution solve your financing needs, but also improve your cash flow. If that sounds near-impossible, then it is time you knew about invoice factoring, its benefits and how it can help your business.

Every business will acknowledge that cash flow is its life blood. Without cash, business operations come to a standstill. Most businesses tend to think that in order to thrive and grow, they need a product or service, or a strong customer base or a professionally made business plan, with good marketing strategies and of course, an appropriate location. While this is partially true, one thing that no business can survive without is cash in hand.

The next question is - what are the sources of cash for a business? Probably banks, financial institutions, venture capital, friends, etc. Most banks mandate at least three years’ business financial statements before sanctioning the loan. With venture capitalists, it means parting with the ownership of some percentage of the business.

When a business is fairly new, or if it does not have a record of generating profits as yet, it cannot make the banks happy. It may not be willing to part with ownership either. In such a tight situation, it might look as though finance sources have dried up. What can the business now do, to grow itself? How can it tide over this financial crisis?

The Answer - Invoice Factoring

Now let’s say you have a healthy accounts receivable with credit worthy customers. This translates to value that you can offer for sale to other businesses. The money you generate from your accounts receivables can help you overcome that financial crisis.

By selling your accounts receivables, the best part is that you will not be getting into debt because your receivables are your assets, and you are converting these to cash. This cash will give you the power to expand your business, enjoy bulk purchase discounts, and get the extra staff you need and so on.

Most importantly, you do not have to chase payments against your invoices.

When you sell accounts receivable at a discount, it is called factoring or accounts receivable financing. This is not a new concept as it has been used for centuries, even though only recently has it begun to become popular with its ability to inject that much needed cash that a business needs to survive.

Factoring gives the business owner, full control of the business. With no debts to settle, financial statements are clean and the business can access cash even as their sales grow. Factoring is flexible enough to be stopped at will.

Ultimately, invoice factoring can save a business when it has exhausted all conventional resources for cash. With hardly any paperwork, credit checks or repayments involved, Factoring is a quick way to finance the business, helping it grow at the rate it desires, while managing its cash flow with ease.