Does your Company really need a Factroring Expert?

By: Claude Cote
Submitted: 2007-09-05 17:37:25
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Enabling cash flow is the kind of objective desirable for every business that experiences a time of difficulty. Even if asset based loans and factoring are generally preferable for short-term securing of cash flow, they can form a model of the manner in which the borrower would function in long-term loan circumstances. New businesses and even businesses that go through a time interval of fast growth often find it necessary to hold more capital flowing in order to secure their profitable development. In the case where they are successful in handling such short-term means of business financing, they are more likely to obtain long-term loans since lending institutions will already have a proof of their reliability.

Let us look at asset based loans and factoring as two instruments of chance on the business market. When business occasions emerge within certain markets, experienced businesspersons know that they may disappear too fast before they are able to raise the capital necessary to grasp such opportunities. Most frequently, securing long-term financial loan will require a waiting period that may be too long and such opportunities do not wait. This is where factoring and asset based loans bring their advantages. The primary advantage, particularly with start-up businesses or small businesses, is that they can obtain, through asset based lending, more cash, faster than with the regular loans obtain from the typical lending institutions, i.e. banks.

Moreover, and this goes true for factoring as well, asset-based lenders and factors will take care of a number of services, such as invoicing or approaching the handling of accounts receivables. In addition, if in the past borrowers had to confront rather high interest rates and other similar charges for the asset based loans they received now the situation has changed, since such rates are experiencing a fall. The decrease in the rates and additional charges has taken place because of the increase in terms of market competitiveness.

Of course, the amount of the rate remains negotiable, which is a supplementary advantage for the borrower. Make sure you provide a reliable basis for the lender to agree to provide you with asset-based financing. This means that you should allow the lending institution to check the liquidity of the assets you are tapping in order to obtain the loan. In addition, you do have to bring evidence of a dependable credit record and of the manner in which you have conducted your company for as long as you have been active in your field.

In other words, reliability is the keyword. On the other hand, with factoring, they will look at the credit history of your customers. The regular sequence for securing cash flow through this method includes several stages. First, it is necessary to produce an invoice for the services or products distributed. Then you need a copy of the invoice and advance it by e-mail or fax. Next, it is the factor’s turn. The factor needs to estimate the credit reliability of your customer and his or her readiness to recoup the invoice when the time comes. After completing the estimation, the factor wires a quoted percentage of cash advance. Then the factor does the work associated with the collecting of the payment and, at the pre-established moment, he or she must receive payment. Finally, you will receive the balance, minus the discount charge.

Therefore, if you want to invest profitably in assets that are highly likely to generate income, if you want to avoid any limitation coming from suppliers, and if you want to enhance the marketing of your products or services, you need an improvement of your cash flow. If you cannot afford to wait for the regular loan procedures to complete (it may take at least a month for such a process to reach its actual financing stage), then asset-based financing and factoring are what you need.

Article source: Expert Articles