As a company grows, so do their need for funds. This comes from the fact that as the companies are growing they will have new customers coming in with invoices, which are on a credit period of 30-60 days. This often leads to deficiency of funds for cash requirements of the business. This is where business factoring comes to the rescue, providing companies with funds at a time when it may not be possible to get any funds from banks. Business factoring is using your receivables as collateral to get cash advances from financial institutions satisfying the funding needs.



Most factoring companies provide funds to businesses when banks find it difficult to provide loans without collateral of fixed assets like machinery, inventory and real estate. There is no such restriction when you deal with the factoring companies. They would buy the receivables from you and will pay you cash, which may be around 80% of the value of the receivables. Thus, your company does not have to wait for the credit period to get funds on the receivables.

The remaining amount is given to you when they recover the amount due from your customer. The factoring companies will charge you a certain amount of fee for their services. It may be a percentage of the value of invoice that you have sold to them. Factoring fee is not dependent on your credit rating but depends upon the credit worthiness of the customer, the terms of the invoice, the invoice age and the factoring volumes.

The factoring process is simple and quick. It allows you to get funds in a short period of time. One can initiate the process by providing complete information in the application. After the application is verified and your authenticity is verified, it then verifies your clients. The entire process may take only about a day or so. After which they shall sanction your money. However, most of the companies provide money after deducting their fees.

This way you have funds in a short period. This is helpful when you require these funds to carry out expenses like payment of wages, rents, taxes and other payments that have to be done immediately. Thus, factoring proves to be a smart funding option for small and medium sized businesses. Without any credit scores built up yet they can get good amount of funds by using their invoices.

When you consider factoring as a funding option you are not building up debts which means you are not adding up to your monthly expenses. Moreover, you can undertake to factor only that amount which you think are essential. So, you can plan on factoring so as to maintain a steady cash flow every month. Having built up a relation with the factoring company, every time you need funds you may immediately approach the factoring company and sell of invoices to get necessary funds. Thus, it proves to be a viable option for the funding needs of business small or big.