A Bright Spot for Your Lean Cash Reserve

Start-up businesses usually sell products or services on credit terms to develop a large customer base. Even the businesses which are reasonably established in an industry provide extended credit terms to their customers to maintain ongoing business relations. Though in the interim, they need additional working capital to pay employees' salaries or for buying equipment or to meet some other business expenses. Even if your business is growing, it still may face cash flow shortages due to unpaid invoices. Customers would take at least 15, 30, 45 or more days to make payments. In a situation like this, you can benefit from spot factoring or invoice discounting.

Factoring is a financial strategy that allows you to receive immediate funding from a secondary source. It ensures that you always have enough cash for regular operational expenses and other business contingencies. With factoring, you can get the much needed working capital to meet your business obligations. Nowadays, getting funds through bank loans has become quite challenging. Today's dismal economic scenario and tight lending markets has made loans difficult to obtain. Factoring services enable you to fulfill funding requirements by selling specific invoices.

Some of the unique features of spot factoring are below:

• There are no long term contracts.
• Unlike conventional loans where banks check your credit history, a factoring company only checks your customer's credit worthiness. It is not concerned about your credit history.
• You need not wait for 15, 30, 45, 60 or 90 days to receive payments from customers.

Transactions through factoring can be for a single invoice or multiple invoices against which you can receive advances of up to 90% of the invoice face value. You can always avail factoring services on a "use it when you need it" basis. These services can always be structured to meet your business' ongoing cash flow needs.

At a glance, you will get the following key benefits through invoice discounting:

• Quick Funding - You can get funds in just 4 days if applying for the first time. In the subsequent cases, you will receive the cash in 24 hours.

• Flexibility - There are no minimum or maximum annual volume requirements.

• No Penalty - You need not pay any upfront penalties or credit line fees. There will only be a discount fee (typically between 2.5% and 7.0%).

From the arguments above, it is clearly evident that Spot factoring is undoubtedly a flexible, cost-effective, quick and convenient funding option. It could be an ideal solution to your short-term cash flow needs. You can sell single invoices or several invoices. You can get funds between $10,000 and $500,000.

A/R Financing is less rigorous and has quicker turnaround time compared with conventional financing such as bank loans. With this funding, you can always pay taxes and bills on time, improve your good credit rating, and you may be able to get better terms from suppliers. It is indeed important for businesses to incline towards flexible funding-like factoring for sustainable growth.

I have experience in writing on accounts receivable financing, also known as spot factoring. My write-ups typically explain how accounts receivable financing factoring is a viable funding option for small businesses.