Factoring
Many companies can struggle to manage their cash flow. Invoice factoring can provide a solution.
When clients have up to 60 or 90 days to repay a balance, it can cause financial tension where a business might have to pay bills with no capital on hand to cover them.
Factoring can provide quick relief in these situations, with fast financing and a variety of options. Rather than waiting for clients to pay, a company can work with a factoring agent to expedite the process. Part of what makes factoring such a valuable tool is that it can work in various situations. Typically, factors will prepay an outstanding invoice (usually up to 80 percent), but the system works for purchase orders and long-term contracts as well.
Accounts Receivable
For some businesses, offering extended repayment terms to clients is standard practice. Unfortunately, if clients wait until the end of the term to pay off any outstanding balance, that can create cash flow problems.
Factoring offers relief by financing the majority of the invoice upfront so that the business can get funding without borrowing or taking out a loan. Even better, factoring agents usually pay within 24 hours, so the process is perfect for fast cash. Then, once the customer pays the balance, the remainder goes to the business, minus a factoring fee.
Businesses without much credit history can qualify since the factoring agent looks at its clients’ financial health instead. Also, companies can factor as few or as many invoices as necessary, with no long-term contracts.
Purchase Orders
Purchase orders are a common form of contracting between clients and businesses. However, for some companies, fulfilling the request can sometimes be a struggle. In these instances, the enterprise might have to borrow money to pay for materials and labor upfront, which can create problems down the line.
Instead, it is often better to work with a factoring company. Once the purchase order is received, the factor can finance a majority of it immediately, freeing the business from having to take out a commercial loan. Then, once the order is fulfilled and the customer pays, the remaining balance goes to the company, less a factoring fee.
This process is even more viable because companies can access these funds at any point during fulfillment. This flexibility enables the business to make the right choice for its bottom line.
Limited Recourse Factoring
Although factoring can be helpful for many brands, it does come with some risks. If a client doesn’t pay the outstanding balance for any reason, the company has to return funds to the factor. In many situations, refunding money can create its own challenge.
Limited recourse factoring alleviates this issue by putting most of the risk on the factoring agent instead. In this case, if a client doesn’t pay, the business doesn’t have to return the funds. Usually, factoring agents won’t provide as much money upfront with limited recourse factoring. Also, when a customer fails to pay, the company won’t receive the remaining balance, and it may still have to pay the factoring fee. If you are interested in limited recourse factoring, give us a call, and we can walk you through the process.
Contract Financing
Some businesses have cyclical earnings that ebb and flow based on consumer demand. For example, lawn care and snow removal businesses have lulls during seasonal change.
If the business operates on both contracts and one-off services, funds can be accessed through factoring.
Contract financing is a viable solution because the company can tap into the funds at any point during the contract lifecycle. Also, factoring agents provide fast cash, which can help when equipment or supplies need to be purchased to meet the scope of work. If your company has multiple long-term contracts, don’t borrow money you have to pay back. Give us a call to see if contract financing is right for you.
Address: 885 Gold Hill Rd, Suite 454, Fort Mill, SC 29708
Call: 855-735-BRAC (2722)
Email: solutions@mbraccapital.com
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