One of the biggest dilemmas faced by newly established or small businesses is the need for adequate capital. Throughout the early stages of a business, it’s common to overspend initial revenue towards logistical planning and setting up the company. This scenario can leave many business owners with a significant need for additional cash to keep their business operating. With these situations, factoring companies Dallas specialists can prove to be an excellent option.
Invoice Factoring as an Alternative
One of the primary reasons these problems occur is due to the fact many traditional lending institutions have concerns regarding risk factor attached to a new firm. Therefore, most are hesitant to give business loans freely. The process involved with factoring receivables will entail an instant revenue flow to the business. In some cases, certain business assets can act as collateral. Factoring in the transaction where a business hands over the right to collect outstanding debts to a specific company offering cash in return. The factoring business then collects these debts at a later time.
Factoring is Not a Loan
If you have established customers that typically pay on time, these invoices are sold to an investor as a factor. The investor, or factoring firm, charges a predetermined percentage when invoices are issued. When the debt is collected, the seller receives the balance minus a fee. This advance and fee will depend on your monthly volume, the size of invoices, credit considerations, amount of time needed to be paid, and other considerations. As there are no credit lines or debts to repay, factoring isn’t considered a lending transaction. Typically, it only takes several days for approval, and the business owner maintains full control of their company.
Any Business Can Qualify
Just about any company can use factoring. The main requirement is they have outstanding invoices which can be transferred. Even companies who are in bankruptcy can have receivables factored. However, there can be different requirements dependent upon the buyer and their particular guidelines. Fee percentages can differ as well as the discount rate applied. Many factoring firms work with all industries, while some specialize in specific fields such as medical.
Advantages of Factoring Agreements
Many business owners think using a factoring arrangement is only a last resort when they are in need of revenue. The reality, however, is that companies should consider factoring when they start out. Factoring companies Dallas specialists have helped many businesses to experience growth quickly.
