Many small businesses have taken a hit financially due to the slow economy during the last four to five years. And the real truth of the matter today is that many SMEs simply cannot be approved for a traditional loan at all. This is why many U.S. small businesses are getting cash infusions from invoice factoring companies in 2013.
If a small business is faced with laying people off, versus using a new alternative method of finance like factoring, factoring companies will win out every time, because the most important thing a small business needs is cash flow. A factor will purchase your accounts receivables then advance you up to 80 percent of the face value. The balance of these funds minus the factoring company’s fee is released once the receivables are collected. A factoring company will take possession of the accounts receivable list and assist in collections.
Today’s factoring industry is going through resurgence. In the old days people thought that using a factor was a last ditch effort to find funds. But today there is an entirely new discipline of factoring companies serving SMEs on a regular business to keep their cash flow moving. This can be the bridge financing tool for companies who cannot get a traditional bank loan.
The Interface Financial Group (IFG) offers a new service called single invoice factoring – or spot factoring – so that a small company can simply factor one invoice at a time to help pay for unexpected bills such as taxes, etc. While a traditional financial institution might take from 90 to 120 days to make a decision on a bank loan , most growing business owners prefer not to wait.
These new entrepreneurial factors, comprising more than 90 percent of all U.S. factoring companies, usually target fast-growing firms. Service and technology businesses tend to go through intense periods of growth before they have the collateral for bank financing and, in essence, factoring enables them to do other things like pay bills, payroll, or even take on new business before they have been paid by the old business.
A factor usually keeps between 1.5 percent and 5 percent of the face value of the invoices purchased. It all depends on the size of the invoices and their customer’s credit history. But in summary, most people agree that factoring is affordable, and worth the cash flow and peace of mind.