Using Factoring To Fill Budget Shortfalls

Most businesses will operate under a model where they have a large amount of money coming and going out. All of their extra money is invested in new equipment and inventory, and any money that is just sitting around is not making the business grow. The only problem with this model is that it means that a business may not have enough immediate funds to cover expenses. This may require a business to wait a few days to purchase what they need, or they may have to setup a saving account where they are forced to keep money sitting around.

Factoring

One of the best ways to get around this problem is to use factoring. Factoring is the process where a bank or lender covers a businesses short term budgetary shortfalls. This line of credit is offers a very low rate as lenders know that the money will be paid back, and a business can quickly establish a line of credit by covering the factored money quickly. Two important things to know about factoring is how to arrange for it, and how to increase the amount of factoring that a lender can offer.

The process of arranging for a lender to offer factoring is very simple. The simplest method is to simply speak with the bank manages the small businesses checking and savings account. The bank is able to offer a sum of money that is usually equal to the weekly revenue of the business, and they can offer a factoring package that applies this amount across each one of a business’s checking accounts. This means that a small business can have access to as much factoring as possible on an individual account. A business can use this service in order to cover large expenses such as payroll and rent, which usually come out of an account that is separate from a small business’s main account.

It is also possible to have a third party lender offer factoring on an account. In order to do this, a small business needs to find a lender that offer factoring. It is possible to shop around in order to find a third party lender that is able to offer the lowest rates and fees. The third party lender will look over your credit history, income, and the amount of factoring that your bank offers. They will then offer a factoring package for your approval. When working with a third party lender, it is possible for them to offer funds either before or after the bank applies their factoring service. This means that the lender with the best rates will attempt to cover the budgetary shortfall first, and then the next factoring provider will cover the rest. The process of applying factoring is usually automatic once it is setup, and the providers will simply offer a short term loan whenever the account needs extra money put into it.

Accounts-Receivable-Financing

Because factoring is such an effective way to allow a business to invest all their assets, it is a good idea to try to increase the amount of factoring that your small business can secure. The best way to do this is to pay close attention to your accounts. Any accounts that have factored money in them, needs to paid off as quickly as possible. Usually, factoring is only offered for a few days or weeks, and so a business needs to make sure the account is back in the black as quickly as possible. Being able to preserve good credit in other areas will also increase the amount of factoring that a business can secure, and paying off business loans is a great way to make a small business eligible for additional factoring.

Most small businesses will submit new documents to their lenders when they have an increase in revenue or assets in order to secure an extra line of factoring credits. It may even be a good idea to consider putting down a piece of property as collateral. This will allow for a business to secure far more credit, and they can simply remove the property as collateral if they happen to want to use it as collateral for a long term business loan.