Factoring and small business options
Running a small business can be very rewarding, but there are times when it can become frustrating. One of the biggest issues plaguing small businesses is slow paying customers. This can put stress on working capital and slow business growth, but there is good news. Factoring is a great way to free up working capital and get thing flowing again. Factoring also known as invoice funding and receivables financing is a fast way to sell commercial invoices. Business owners have two main options when selling there receivables, non recourse factoring and recourse factoring.
Non recourse factoring is when a company selling its invoices transfers ownership and risk to the factor. The factor becomes responsible for collecting the debt from the customer and the risk of being unable to collect. Recourse factoring is when a company barrow against it’s commercial invoices. The factor usually gives up to 80% of the face value of the invoice for a set amount of time. The borrowing company is still responsible for collecting from the customer and repaying the advance.
Business owner also have the option of auctioning there accounts receivables on on-line marketplaces to investors or selling to a factoring company. Auctioning gives the business owner more control over how much of a discount they are willing to give on there receivables. On the other hand when selling to a factor, they decide the discount, and the fees. While these on-line marketplaces are new to the industry, they are growing fast and are secure for both small companies and investor.
While factoring is a great tool for small business owners , there are many things for a company to consider when factoring there receivables. Business owner should always do some research before jumping in feet first. There are many sites around the web that have great information and can easily be found with a quick search of Google.
