Factoring For Small Business Versus Credit
The U.S. Small Business Administration Office of Advocacy reports that one in five
small businesses nationwide don't use any form of credit at all, according to a new survey released last week. The results are consistent with similar reports done in 2003, 1998 and in 1933.These firms tend to be significantly smaller, more profitable, more liquid and more creditworthy than firms that use some form of credit, the report said. These companies tend to be in the service, retail and wholesale trade industries. Not using credit also constrains growth of these companies.
40 percent of the businesses surveyed use both bank credit and trade credit, buying goods or services on account of the firms identified in the survey. The companies mentioned are usually larger and less profitable.
Factoring would allow a company to grow without having to borrow. As a "use it as you need it" service, cash can be obtained quickly and easily when it is required once the company is setup with the service. The only requirement is a signed application and a copy of the company's current financials.
After a factoring company has looked at the creditworthiness of the client's customers, funding can be provided within as little as 24 to 48 hours. Most factoring companies do not expect to buy 100 percent of a company's receivables, and there are no minimum or maximum sales volume requirements.
Some factoring companies offer clients a "use it as you need it" funding option called single invoice factoring, whereby every invoice purchase is a separate transaction and does not form part of a portfolio lending approach.
This transaction is a buy-sell transaction. The steps include:
1.) Due Diligence - After being approached by a prospective client, Most factors undertake a thorough due diligence program that typically takes about 24 to 48 hours.
2.) Review Invoices - Once the due diligence is completed, the client is at liberty to offer invoices to IFG for purchase.
3.) Credit Verification - After receipt of the invoices, the factoring company will check the credit of the debtor named on each invoice and make sure the sale represented by each invoice has been satisfactorily completed.
4.) Debtors' Notification - Once credit has been verified, each debtor is notified of the purchase by the factoring company and the client is paid for the invoices.
5.) Debtor Payments - At the end of the credit period the debtor will make payment directly to the factor thus completing the transaction.
Factoring services are typically very user friendly, fast, flexible, and cost effective and professional rates are competitive; however each client's circumstances will vary and may have an impact on the fees.
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