The Reason Companies Use Accounts Receivable Factoring.
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by: WadeHenderson
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Word Count: 468
It does not matter what type of company you are referring to, when a business experiences fast increases in sales the outcome is usually the same " liquidity issues. What I am referring to here is imagine a distribution company, who generally sells about $250,000 of product in a year, then it finally gets the big account they have been working on for 9 months and the first order that comes in is for $600,000 worth of product over the next 3 months. The terms of sale to the customer are net 60 and their terms with the suppliers are net 30.
Inventory must be produced and shipped to fill these mushrooming orders even though incoming cash reflects sales from the previous few months, when revenues were significantly lower. The situation is much the same with fast-growing service companies, which typically face a shortage of personnel to provide the required services as their sales explode to higher levels.
Numerous remedies exist for businesses experiencing a cash flow crunch, including various forms of debt and equity financing. However, the current slowdown has made banks increasingly reluctant to fund loan proposals that are not airtight, while equity funding, with the loss of control involved in shared ownership of a business, is not suitable for every company.
There is another type of financing that is more and more common every day called Accounts Receivable Factoring. While it is true that Invoice Factoring has been around for hundreds of years now, coming from the textile industry initially, it growing in popularity very rapidly in all industry sectors. The reason for its increased popularity is that the company that is selling the Accounts Receivable, will receive a cash injection of up to 90% of the face value of their invoices with 48 hours of the invoice being raised rather than having to wait 60 or 90 days to collect the invoice.
The Accounts Receivable Factoring Company, who actually purchases the Invoices, will generally advance up to 85% or 90% of the face value of the invoices. After the end customer pays the invoice amount to the Invoice Factoring Company, the seller of the Accounts will be given the retainer amount " 10%-15% less the finance fee. The advance they receive from the Factoring Company can be used for what ever the seller needs the funds for " new equipment, inventory, or payroll " what ever they wish.
There are so many alternatives to bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.
About the Author
Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com cash flow finance medical receivables Get a totally unique version of this article from our article submission service
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