Factoring Articles

Factoring: A Best-of-Breed Survival Tip for Small Businesses

There are many businesses that have stayed in business and benefit from the working capital garnered from invoice factoring for small business in the face of tight credit at mainstream banks. First documented in the American colonies before the revolution, at a time when materials and/or goods were shipped from the colonies to the Americas, factoring is not a loan but it’s the purchase of financial assets, also known as receivables. It differs from traditional bank loans as follows. Bank loans involve two parties, and factoring involves three parties. Factoring is based on the value of the receivables.  Banks base their decisions on a company’s credit worthiness.

They were not under any obligation to wait to be paid. Invoice factoring benefits businesses that do not get paid for 30 to 60 or 90 days by advancing up to 90 percent against invoices.  The factor generally looks at the creditworthiness of the client’s customers and can fund within as little as 24 hours. Most companies do not expect to buy 100 percent of a company’s receivables.

During the Industrial Revolution, factoring accounts receivables became more focused on the issue of credit, as factors guaranteed payment for approved customers. | Invoice factoring became more focused on the issue of credit during the Industrial revolution. It was before 1930 in the United States when factoring occurred and it was primarily for the textile and garment industries, and then after the war years, factoring expanded to other types of businesses.

When interest rates rose during the 1960's and 70's, private factors became popular and it intensified in the 80's due to the changes in the banking industry and interest rates. Small businesses were forced to find other sources of financing for expansion and growth so factoring became more widespread.

By using factoring, also known as factoring accounts receivables, it is easiest to keep your cash flow flowing, you will have the edge over the other guy, so you can order more supplies to build more products, keep your employees and sales staff on, pay all your bills, and in turn sell more. 
 
Factoring is easy. It is not a loan; rather it is the purchase of financial assets, or receivables, from a factoring company. The third step is going to give you an edge too. It is accounts receivable factoring.  By using this financial tactic to keep your cash flow going, small businesses can pay their bills, keep employees or staff, keep an edge over competition, order more supplies, build more products, and in turn sell more, and make more revenues. 

Factoring invoices doesn’t work like traditional bank loans involving two parties, as factoring involves three parties. Banks base their decisions on a company’s credit while factoring invoices is about the value of the accounts receivables for a company. There are no minimums or maximums, and no long-term commitments.

Factoring companies like the Interface Financial Group, Inc. (IFG) are finding that single invoice factoring is a popular new tactic allowing its clients to factor one invoice at a time. Projections ahead for the year 2010 include the fact that businesses will be factoring accounts receivables - less for survival and more for stability and growth.

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