Know The Most Secured Way To Avoid Cash Crunch
Losing business opportunities because of lack of funds would be the last thing on peoples mind. Yet, it would seem difficult to get rid of the issues; possibly, there are no solutions from the bank. Even if there is a bank line of credit, they are not enough or would be taking too much time that it is only as good as the business is without it. Invoice finance is apparently the most secured way to avoid the cash crunch in such situations.
Also known as the accounts receivable factoring, this financial solution is the selling of accounts receivable or invoices at a discount to a factoring company, or simply a factor. The working procedure of this solution is quite simple as evident from its two major steps. First, the business writes the invoice to its customers, notifying them to send the payment to the factor. Second, the factor advances cash on a portion of the invoice, which can range between 80?90 percent of the value.
The best benefit lies in getting quick access to cash in a couple of days, at most. Some other merits include in the factor managing the transactions, administering the accounts, conducting credit assessments and handling the collection.
For all these benefits of accounts receivable factoring, the business has to pay for the service. As noted, the factor earns from the fees it gets from discounting the invoice. To take an example, consider a business is receiving 80 per cent of an invoice. When its customer pays, it might get another 10 per cent, leaving 5 per cent for the factor. The 5-per-cent discount can make a huge difference later, so ideally, invoice finance is a short-term solution that has been tailor made for small and medium-size enterprises.
In fact, the higher number of clients and larger invoices a business has, the better is the solution through accounts receivable factoring. As it helps in releasing the working capital, the business can re-focus on growing the business.
On the downside, some unscrupulous elements have been taking advantage of the desperation of the businesses and their lack of cash. There is no such protection as we can find in other liquidity-enhancing options. These people have brought a bad name to this financial tool. However, the scenario has changed with the entry of larger financial companies that are both efficient and cost effective.
Therefore, it is essential to get help from the most reliable factor, which are not hard to find these days. It can easily determine the creditworthiness of a customer, existing as well as prospective. This can further help in reducing the fee and avoiding the cash-crunch issues, even before they started.
Also known as the accounts receivable factoring, this financial solution is the selling of accounts receivable or invoices at a discount to a factoring company, or simply a factor. The working procedure of this solution is quite simple as evident from its two major steps. First, the business writes the invoice to its customers, notifying them to send the payment to the factor. Second, the factor advances cash on a portion of the invoice, which can range between 80?90 percent of the value.
The best benefit lies in getting quick access to cash in a couple of days, at most. Some other merits include in the factor managing the transactions, administering the accounts, conducting credit assessments and handling the collection.
For all these benefits of accounts receivable factoring, the business has to pay for the service. As noted, the factor earns from the fees it gets from discounting the invoice. To take an example, consider a business is receiving 80 per cent of an invoice. When its customer pays, it might get another 10 per cent, leaving 5 per cent for the factor. The 5-per-cent discount can make a huge difference later, so ideally, invoice finance is a short-term solution that has been tailor made for small and medium-size enterprises.
In fact, the higher number of clients and larger invoices a business has, the better is the solution through accounts receivable factoring. As it helps in releasing the working capital, the business can re-focus on growing the business.
On the downside, some unscrupulous elements have been taking advantage of the desperation of the businesses and their lack of cash. There is no such protection as we can find in other liquidity-enhancing options. These people have brought a bad name to this financial tool. However, the scenario has changed with the entry of larger financial companies that are both efficient and cost effective.
Therefore, it is essential to get help from the most reliable factor, which are not hard to find these days. It can easily determine the creditworthiness of a customer, existing as well as prospective. This can further help in reducing the fee and avoiding the cash-crunch issues, even before they started.
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