Factoring to keep your cash flows positive

The recent crises in Egypt, Tunisia, and elsewhere have, in a big way, demonstrated how vulnerable and volatile the world remains.  The markets have reacted strongly, with major
gains in oil prices and increased volatility among many stocks.

Banks and other lending institutions base their decisions on how to lend and to whom on their view of the world, the state of their country’s economy, and the volatility and riskiness that they perceive.  Bottom line, no matter how strong your business fundamentals, whether a bank will lend money to you to grow your business or just to sustain you through hard times is largely outside of your control.

So, what do you do if your business has cash flow issues and some of your biggest customers take a long time to pay you what they owe?  You could trim staff, cut costs in other ways, get loans from family or friends, etc.   However, while any of these may benefit your business in the short term, the medium and long term could be severely threatened.

One alternative that is suited perfectly to address your cash flow needs is invoice factoring – also known as accounts receivable financing, business factoring, or just plain factoring.  The advantage of invoice factoring is that it gives your business a cash flow injection to meet payroll, fund growth, or manage through seasonal slowdowns.  Factoring is useful in business-to-business transactions in which you are actually sending a bill to your customers.

While factoring applies to commercial transactions, it can include medical factoring (http://www NULL.seascapecapital NULL.com/medical-receivables NULL.asp).  If you are sending bills to MediCare, Medicaid, or insurance companies, this would fall
under the heading of medical factoring.

Regardless of whether you need standard invoice factoring or medical factoring, the basic process for factoring services is similar.  The steps are:
1)      Set up a relationship and sign an agreement with a factoring company or a broker
2)      When you send out invoices, the factoring company will advance to you 75-85% of the amount that you are billing (this number can be lower for medical receivables
factoring) within 24-48 hours
3)       When your customer pays their bill, the factoring company will give you the remainder of the amount owed to you less whatever fee was previously agreed upon.

The fee is dependent on variables such as how much you are invoicing/factoring each month and the amount of perceived risk with the customer base.

Factoring can be an important tool in helping your business keep stable cash flows and reaching the next level of success, so it is in your best interest to have an understanding of this service.  There are many good factoring companies and brokers out there, so find someone with whom you feel comfortable and check them out thoroughly with the Better Business Bureau and Google.  Your bottom line may thank you!