 In addition to offering business loans and leasing financing to our clients, we also offer Accounts Receivable Factoring as an alternative to traditional financing. This type of financing has long been used by large corporations and is now available to small and medium size businesses. Factoring, also known as "cash for receivables," is the conversion of a business accounts receivable into immediate cash by the outright purchase of its receivable, at a discount by a factor.
Accounts Receivable Factoring is a great way to obtain funds to grow your business without debt. It's an excellent way to obtain working capital for your business and to improve your cash flows. Factoring is not a loan and is not based on a business ability to repay the money advances. The length of time in business is NOT a consideration. The debt to equity ratio is NOT a consideration. Instead, it is based on the ability of your customers to pay what they owe. Once a factor purchases the receivable invoice, they assume the responsibility for its collection. The factor is also responsible for accounts receivable management functions, such as credit investigation, accounting and bookkeeping. As compensation for these activities, the factor purchases the receivables at a discount. The discount fee is usually dependent on the amount purchased, the credit worthiness of the debtors, and the turn around time. Fees can vary substantially, but are usually less than most business owners expect.
|
|
 |
 Once a factoring contract is entered into, you will submit orders to the factor for credit approval before shipping. The factor's credit department becomes your credit department. When the order is approved, you will receive up to 90% of the proceeds with the remainder retained by the factor as a reserve against loss from complaints and returns. This is withheld to protect against credit losses, since the factor purchases the accounts without recourse. Usually the factor will settle the account each month and pay the proceeds due, less cash discount.
One of the biggest advantages of factoring is that businesses get immediate cash (usually between 70% and 90% of the face value of the invoices) within 24-48 hours, which means you can accelerate your cash flow by speeding up payment of the receivables. You will have an immediate source of funds for operating expenses and future growth. You will be able to use your own, hard earned cash without having to wait 30, 60, 90 or 120 days to collect from customers. Additionally, since only receivables are used as collateral for the cash advance, other assets (such as real estate and equipment) can be used for future borrowing.
|
|
|
Cash flow is probably the most important element in the success of a business. Accounts receivable may be the biggest asset on a company's balance sheet. They also represent the business best source of operating capital that is in permanent disuse. Factoring improves cash flow. A business can use cash, currently tied up in receivables, to increase sales and take advantage of supplier discounts. Factoring accelerates cash flow by eliminating the time lag between the delivery of goods or the performance of a service and the payment for it. Most businesses have to pay their expenses before they can collect their receivables, disrupting cash flow.
Preferred Capital Alliance, Inc. can help you determine if factoring your company's accounts receivable is the right option for you. Once you have come to the decision to factor, Preferred Capital Alliance, Inc. will package the transaction in accordance with the factor's requirements. Preferred Capital Alliance, Inc. will select from a wide variety of investors to find the right match for your company. Whether your company is in the start-up phase or you have out grown your cash flow, we can help factor your invoices and get the cash you need.
|
|
