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Overview of Factoring – AR Financing

Many business owners, will find themselves in situations where they need cash fast for Factoring –AR Financing. Cash flow problems are the result of customers who are slow to pay on their invoices. These potential issues can result in capital shortages when it’s time for payroll or inventory is getting low. In these situations, you may not have time to apply for a traditional bank loan. Invoice factoring may be the solution to getting your business back on track.

Types of Financing  

For this type of financing you will work with a factor. For a reduced priced, the factor will purchase your invoices and the factor will then assume the responsibility for collecting from your customers. You get the cash for the invoices almost immediately and go about your business operations, but in a better position as far as cash flow is concerned.

Invoice factoring is an alternative to traditional financing through banks and other lending institutions. While a bank would require a near perfect credit history, a factor will be the perfect fit for newer companies who lack strong credit history or have imperfect credit. In exchange for credit history, you’ll need to have a strong customer base who are proven to be consistent payers.

Benefits  

The benefits of factoring are numerous. With a bank you could find yourself waiting weeks to receive your funds, but working with a factor enables faster access to funds, and in many instances you could have your cash in 24 hours. Once you’ve received your cash, you can use the it for nearly any business purpose you can conceive. You don’t have to report back to the factor how the money was spent. You’ve also saved yourself the burden of collecting on your invoices.

Factoring is a tool you can use regularly to keep your business on track and moving forward. With this type of creative financing, you can have access to funds faster and spend your cash as you deem fit. Unlike a loan, there is no worry of defaulting or getting caught up in fluctuating interest rates. You also lose the headache of collecting debts and can instead focus on the future of your business.