Business Knowledge

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How Does Factoring Help My Business

Business growth relies on increased sales of products, sales and assets. Factoring is a popular method of raising capital while stabilizing and expanding your business.

The methodologies used for this financial transaction provides you with alternatives to develop partnerships with your business accounts.

The basics of factoring is to sell accounts receivable to a third party funding source. Usually, these accounts receivable are sold at a discount, usually of 2-6% and sometimes up to 25-30% of the expected price. Offering this financial provision allows your business to raise capital and to accelerate the value of assets you are managing. The main advantage to factoring is to build capital and to sustain your business.

There are certain businesses that this benefits not only by raising capital, but also as a management approach. Industries that have long receivables can use this to stimulate slower business cycles. Supply industries, for instance, may have overhead that remains in stock longer combined with several outstanding accounts. By using factoring, it improves the cash flow and management while allowing the business cycle to continue to grow. It also provides a stronger growth stage by lowering the number of receivables outstanding and increasing revenue.

Businesses that need more capital but don’t want a loan can also benefit from factoring as the approach is to appeal to customers of clients. Loyalty, trust and a reputation with the company becomes a priority, as opposed to financial status. If you don’t qualify for a loan, then this acts as a substitute to assist with the development and growth of your business. More important, you will be able to include services that are outside of traditional banks. This includes accounting work, credit checks and financial reports.

Increasing the reputation and the financing of your business is based on the return of revenue. If you have outstanding invoices, then you can consider factoring these to a third party. This assists with cash management while increasing the capital in your business. With this approach, you can accelerate business growth with more profitability. 


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