How can I borrow money using my invoices as collateral?
3-28-2005 
If your business is in a cash flow crunch due to slow paying customers,
then welcome to the club. There are thousands of business owners going
through everyday challenges trying to keep their business afloat. You
would think it would be lack of sales, but you would be surprised to
know that many small businesses start with a small business loan,
savings accounts or credit card and later realize the much more
operating capital is needed than originally planned.
The number one failure in business today is the lack of working
capital. There is a cash flow cycle that many business owners are not
aware of if they sell on a credit bases. If you do not plan ahead, you
will run into a brick wall once you are out of money to continue day to
day operations. If you can think of the last time you drove for a long
road trip, you probably planned where you would fuel up and how much
money you were going to need for fuel cost. An 800 mile drive may
require 3 fill ups. The same planning should be done in a business selling credit sales,
it is
going to need cash fuel to fill up the checking account more often than
you think. If you offer net 30 day terms
on your invoices, then plan to get paid in 40 to 50 days on good paying
accounts and 51 to 75 days on slower paying customers.
How much money will you need for financing your customers? That’s
right, you are now becoming the interest free bank for your customers.
In addition to financing your customers, you will need cash flow for
payroll, inventory replenishment and fixed expenses, your business
adventure should plan to have enough working capital for 120 days before
receiving your first payment. Add up 4 months of your total cost of
goods and fixed expenses based on the planned sales and you should be
able to figure out how much money you should have to sustain a
successful business.
If you don’t have access to more working capital, what’s the other
alternative? If your business today is increasing sales, has credit
worthy commercial customers that owe you money and your business is free
and clear of any liens. Your business may qualify for
invoice factoring.
Invoice factoring is a financing method used by many fast growing
businesses.
Factoring companies specialize in purchasing your invoices
and advance you cash the same day or within 24 hrs of verification. The
process to set up takes about 5 to 7 working days and the business
owners do not need good credit scores for approval. Factoring companies
rely mainly on the credit worthiness of the customer because the invoice
for delivered product or service is the collateral used to fund, not
your credit score or financial statements.
With this type of financing, your business growth is unlimited.
Your sales are converted to immediate cash and can pay your vendors with
early payment discounts, make payroll and pay your bills for every day
operating expenses.
How much does invoice factoring cost? Factoring companies charge
discount fees based on the value of the invoice. If your business
accepts credit cards, then you are already factoring to a degree. For
example, your credit card merchant charges you a discount fee of 3% and
you receive 97%. A factoring company works almost the same way but the
advance and discount fees may vary depending on volume and industry.
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1st Commercial
Credit, a
nationwide
factoring company headquartered in El Paso, Texas. Provides accounts
receivable financing in the US, Canada, and the UK; offers
export trade finance to clients in every major world
market and can convert receivable finance transactions in 17
currencies.
1st Commercial Credit (SM) is a trademark of 1st Commercial Credit, LLC.
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