If your business has large outstanding accounts that keep you waiting a month or more for payment, moving on near-term opportunities can be difficult. What many businesses don’t know is that you can borrow on the money owed on those accounts to supply your business with quick finances. With factoring, you can get the funding you need to secure raw materials so you can satisfy incoming orders faster. Using accounts receivable factoring, purchase order factoring, contract financing, and limited recourse factoring will enable you to generate cash flow so you can move at the speed of commerce without the responsibility of collections weighing you down. When you partner with the right financing team, you can discover how to leverage these options to keep you on the right track.
Accounts receivable
Accounts receivable are an often untapped resource for generating fast cash. Instead of waiting thirty days or more for your clients to pay on invoices, your business can put the money that’s owed to work right away. A factoring firm will purchase invoices from your business so you can tackle new projects, take care of unforeseen repairs, or expand your reach. Once they’ve taken over the invoices, the firm will also handle collecting on those outstanding balances, according to the terms you’ve already negotiated with your clients. So, you don’t have to worry about sending payment reminders and collections notices. After the invoices have been paid, the factoring firm will retain a portion of the funds and send the remainder on to you.
Purchase orders
If your business has established clients who continuously satisfy purchase orders on time, you can leverage those purchase orders to generate short-term finances. Purchase order financing is especially well suited to businesses that are unable to secure traditional bank loans, either due to a lack of credit history or an undesirable credit rating. Bypassing traditional bank lending methods also means that your financing application could be approved faster, allowing you to secure funds under short deadlines. Since the value of the purchase order is the basis for determining the loan, lenders won’t need to perform lengthy credit checks. Purchase order financing does come with its share of risks and is vulnerable to return requests, order cancellations, or alterations. So, it’s important to have a financing firm on your side who will help you understand your options.
Purchase orders
If your business has established clients who continuously satisfy purchase orders on time, you can leverage those purchase orders to generate short-term finances. Purchase order financing is especially well suited to businesses that are unable to secure traditional bank loans, either due to a lack of credit history or an undesirable credit rating. Bypassing traditional bank lending methods also means that your financing application could be approved faster, allowing you to secure funds under short deadlines. Since the value of the purchase order is the basis for determining the loan, lenders won’t need to perform lengthy credit checks. Purchase order financing does come with its share of risks and is vulnerable to return requests, order cancellations, or alterations. So, it’s important to have a financing firm on your side who will help you understand your options.
Limited recourse factoring
The nature of business can oftentimes be unpredictable and issues inevitably arise. That’s why steps should be taken to mitigate risks as much as possible. With other forms of factoring, should your client fail to satisfy their financial obligations, your business must repay any funds borrowed on those promises. This is described as no-recourse financing. Limited recourse factoring, however, limits your responsibility in the event of an unsatisfied invoice or purchase order. This can be especially helpful in new business relationships and during unstable market periods. Working with a factoring firm under a limited recourse agreement allows you to share some of that risk with the lending company. In this case, you would only be liable for a portion of the return funds if a client doesn’t complete payment.
Contract Financing
Many businesses, especially those operating in retail, experience seasonal ebbs and flows. A swimwear company, for example, may see slow sales in the wintertime and rely on their spring and summer revenue to cover their annual costs. Contract financing works to smooth out seasonal cycles and provide regular monthly financing. Based on your client’s business credit and your history of delivery, a contract financing firm places a value on your business’s contract with your client. As long as expectations are being met, your business will receive regular monthly financing. Once a clear set of benchmarks has been established with the financing firm, all future invoices associated with those benchmarks will go directly to them. They will then contact the client to obtain payment.
Contract Financing
Many businesses, especially those operating in retail, experience seasonal ebbs and flows. A swimwear company, for example, may see slow sales in the wintertime and rely on their spring and summer revenue to cover their annual costs. Contract financing works to smooth out seasonal cycles and provide regular monthly financing. Based on your client’s business credit and your history of delivery, a contract financing firm places a value on your business’s contract with your client. As long as expectations are being met, your business will receive regular monthly financing. Once a clear set of benchmarks has been established with the financing firm, all future invoices associated with those benchmarks will go directly to them. They will then contact the client to obtain payment.
