Factoring: Converting Accounts Receivables Into Capital
Keeping the cash flowing is a challenge for all businesses. Does your company face cash flow challenges because of slow paying customers? Have you been forced to decline new opportunities because of cash flow issues?
As every business owner knows, sales alone do not measure the profitability of a company. For example, sales may be increasing but a company may have to wait weeks or even months for payment. During that time, your company cannot purchase materials for more orders, meet payroll, or basic operating expenses. The solutions may be Accounts Receivable Funding (also known as "Factoring") provided through Diversified Funding Services, Inc. Accounts Receivable Factoring is quickly becoming a popular choice for its flexibility and rapid injection of needed capital.
Why Accounts Receivable Factoring is a Popular Choice in Today's Business World
Accounts Receivable Factoring has been in existence for several decades. Today, virutally any-size business that extends credit to other businesses for goods or services can enjoy the many benefits of Accounts Receivable Factoring.
Simply stated, Accounts Receivable Factoring is the exchange of creditworthy commercial accounts receivable for an immediate injection of working capital. When an invoice is generated, it may be purchased with an advance of anywhere between 75% - 90% of the net invoice amount. When your customer pays the invoice, you will receive the reserve portion minus a nominal servicing fee.
Why Accounts Receivable Factoring Makes Financial Sense
Accounts Receivable Factoring offers many Advantages:
- Initial Funding is typically available between 5 - 7 business days upon receipt of completed formal agreements, and then all future advances are funded within 24 hours.
- Accounts Receivable Factoring does not create a financial liability on your company's balance sheet and generally no other collateral(outside of the receivables) is required.
- The amount of funding available to you is only limited by the credit worthiness of your customers instead of your financial history.
- Accounts Receivable Factoring allows quick access to working capital,instead of waiting 30, 60 or 90 days to receive payment from your customers, money is immediately available on demand.
Here is our "Top 10 List" of reasons you should consider alternative funding solutions:
Unlimited capital. The only financing source that grows with your sales, that we know of, is factoring. Factoring your accounts receivables allows you to constantly have the ability to meet increasing demand, therefore, as sales increase, more money becomes immediately available to you.
No debt incurred. Factoring is not a loan, therefore you are not incurring any debt. This can make a very attractive balance sheet, which makes it easier to obtain other financing or to ultimately sell the company.
Elimination of bad debt. The risk of bad debt is fully assumed by any non-recourse factor, thus eliminating this expense from your income statement. No loss of business equity. Ownership percentages are unchanged with a factoring arrangement (unlike most venture capital arrangements).
Offer credit terms to your customers. Factoring your accounts receivables allows your business to be more competitive by offering credit terms to potential and current customers without the risk of a negative cash flow impact.
Leverage off your customers' credit. A company doesn't need to be credit worthy to factor its invoices. In fact, it's not necessary to be in business for three years, or to be profitable, or to meet any other conventional lender qualifications in order to factor accounts receivables. Simply have a credit-worthy customer, and you can qualify for a factoring arrangement.
Establish good credit for your business. Paying your company's bills in a timely manner is no challenge with improved cash flow. Factoring accounts receivables makes cash immediately available to keep cash flow steady.
Invoice processing service. You can greatly reduce your cost of processing invoices. Our factoring services handle most of the work. Mailing invoices (addressing envelopes, stuffing them, paying for postage), posting invoices to a computer system, depositing checks, entering payments on the computer and producing regular reports can be delegated to the factor.
Professional collections. A good factoring company can handle collections more professionally and more productively than you can internally. This could translate into further cost savings for your business.
Factoring is fast and easy. Generally, no tax returns, personal financial statements, business plan, projections, etc. are necessary to process a factoring application. Usually, within about one week of receipt of signed contracts, your factoring account is established. Thereafter, accepted invoices are converted to cash within 24 hours. Bureaucracy prohibits banks from processing that fast.
Take a look at the Profit Comparison Chart at the bottom of this page to see how factoring accounts receivables can improve your bottom line!
- More Benefits of Factoring:
- Meet seasonal demands
- Improve creditworthiness
- Regulate cash flow
- Take early pay discounts
- Meet payroll
- Cash available "On Demand"
- Your "credit line" grows with your business
- No tax returns, audits or financials needed
- No restrictions on use of funds
- No other collateral needed
- No debt created
- Quick & easy qualification process
- Minimal paperwork
- Supplier discount advantages
- Volume discount advantages
- Eliminate early payment discounts to customers
- Detailed management reports
- Invoices are paid faster
- Focus business growth efforts
- No geographical limits
- Credit screening
- Credit monitoring
- Early-warning detection of customer service problems
