You may have heard that there's no qualification process for accounts receivable funding services -- well you heard wrong. But the focus really isn't on you, it's on the invoices and customers you intend to sell to the factor.
Making money and staying in business require the same diligence, whether the economy is booming or in the death-grip of a recession. Staying in business, and even thriving, requires that businesses make money, save money, and grow. Sounds simple enough.
Usually, we call these "buyer's guides," but when you're factoring your receivables, you're not buying. You're selling. Specifically, you are selling your receivables to a third-party who, in turn, immediately pays you a price that is discounted from the face value of the receivable. Learn how it works here.
Company.com "Made for Business" video.
How should you manage your cash properly? First, you better know how much you've got, where it is, and where it's coming from. If the information is in your accountants head, that's a start. If you need to improve your cash flow, you might look at accounts receivables funding or the judicious use of credit. Read our primer on understanding cash flow.
Account receivables factoring companies provide funding or payments due to you from your customers. You sell the debt to a factoring organization at a discount, the factoring company gives you cash and collects the full debt from the client when it's due. You get paid, your customer gets time.
If the bank won't lend you capital, how do you finance your business? We're assuming you don't have a rich Uncle Tony and don't have a winning lottery ticket in your pocket. Your choices after that are institutional lenders, private lenders, account receivables funding, or selling a part of your business. Finding capital can be tough, but here's how to find a few, and how to be professionally prepared to answer the tough questions a lender might ask.
We've said in other articles that cash flow is the thing that kills businesses. Accounts receivable factoring is just one way to keep that revenue flowing in. It's not a new business process, but it might be new to you -- so here is a little guidance on how AR Factoring can work.
Aaron Patzer, CEO of Mint.com, discusses startup accounting and the financial history of Mint.com, which recently bought by Intuit for $170 million. Slides and video of Patzer's presentation are included.