Managing Cash and Accounts Receivable
Managing the cash and accounts receivable for your business can sometimes be difficult. Even if your turnover rates for receivables are good, you may experience times when you need cash faster than you can collect it. During these times, it is good to have a reliable invoice factoring company in Kennesaw, GA, on your side.
What Is Factoring?
Factoring is a financial transaction where a business sells its receivables (invoices) to a third party (the factor) at a discounted rate. For example, if your business has an outstanding invoice for $10,000 that is not due to be collected for 30 days, but you need that cash now, you can factor the invoice. The factor will purchase the invoice from you for, say, $9,700. You will receive a portion of that amount now, say 85%, and the remainder when the customer pays the invoice in full to the factor. The difference between the invoice amount and the amount you eventually receive, in this example $300, is the factoring fee or discount rate. The factoring fee generally varies from 1% to 5% and depends upon your customer's creditworthiness, the amount of the invoice, and who bears the risk if the invoice goes unpaid.
Is Factoring a Good Idea?
Factoring receivables to meet short-term cash needs can be a good idea. Factoring is much easier and significantly faster than securing a loan. For some businesses, a loan is not possible, so factoring may be the only viable option to fill a gap in cash flow. However, it is also a good idea to exercise caution. Factoring can be expensive. Be aware of transaction fees, application fees, and processing fees that will drive up the cost. Factoring also involves giving up some control. The control over collecting the receivable now falls on the factor, so you need to be sure the factor will treat your customer with respect.
Invoice factoring companies in Kennesaw, GA, are there to help your business meet its short-term cash needs. Call and get started today.
What Is Factoring?
Factoring is a financial transaction where a business sells its receivables (invoices) to a third party (the factor) at a discounted rate. For example, if your business has an outstanding invoice for $10,000 that is not due to be collected for 30 days, but you need that cash now, you can factor the invoice. The factor will purchase the invoice from you for, say, $9,700. You will receive a portion of that amount now, say 85%, and the remainder when the customer pays the invoice in full to the factor. The difference between the invoice amount and the amount you eventually receive, in this example $300, is the factoring fee or discount rate. The factoring fee generally varies from 1% to 5% and depends upon your customer's creditworthiness, the amount of the invoice, and who bears the risk if the invoice goes unpaid.
Is Factoring a Good Idea?
Factoring receivables to meet short-term cash needs can be a good idea. Factoring is much easier and significantly faster than securing a loan. For some businesses, a loan is not possible, so factoring may be the only viable option to fill a gap in cash flow. However, it is also a good idea to exercise caution. Factoring can be expensive. Be aware of transaction fees, application fees, and processing fees that will drive up the cost. Factoring also involves giving up some control. The control over collecting the receivable now falls on the factor, so you need to be sure the factor will treat your customer with respect.
Invoice factoring companies in Kennesaw, GA, are there to help your business meet its short-term cash needs. Call and get started today.
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