Should you have cash flow problems, you may be wondering where to turn! Below, we will look at some of the options available.
Detriments of Taking Out a Loan
You avoid the lure of loan businesses by using the services provided by account receivable factoring companies. It has unfortunately become a common routine for people and businesses to take out loans for both small projects, like investing in a new PC, and big projects, for example, if you want to start a tax business. It is of little surprise, many individuals feel that without taking a loan it would be very difficult to survive in today’s competitive environment.
It all seems like a bed of roses in the beginning. You get the amount of money you desire and pay off your debts or pump it into the project you have in mind. However, the trouble arises when it comes to paying back the loan. You don’t merely have to return the money borrowed. There are hefty interest charges lumbered on top of these too, making the whole process shockingly expensive. When using an account receivable factoring company, you don’t even hear the term ‘interest rates’.
Benefits of Choosing Factoring As Your Solution
Account receivable factoring is undeniably the preferred solution when generating capital in the modern-day. You aren’t borrowing money; you are merely getting advanced on what you are due to be paid anyway. This is much more reliable and no risk is involved.
You don’t need to generate alternative revenue streams in order to pay the accounts receivable factoring company in question either. They will merely take a percentage cut from the invoice they have provided the monetary funds for. And don’t worry; this percentage will be agreed on beforehand. So you won’t have to encounter any nasty surprises! Essentially, factoring provides you with a solid footing to grow. You will also have the peace of mind of knowing that your invoices are going to be paid as soon as they are filed. You can excel without constantly worrying about the lack of incoming capital.
Understanding the Triangle Relationship
In order to understand account receivable factoring better you need to view it as a triangle. You are placed at the top of the triangle, your consumers are at the bottom left, and the accounts receivable factoring company is at the bottom right. Prior to this, you would have had a two-way stream; your company and your consumers. When the consumer does not pay, the connection breaks down – there’s no other link. However, when the clockwise operation of the triangle breaks down i.e. the consumer does not pass on the funds to your business. You merely start working anti-clockwise.
Therefore, the factoring company begins the process by paying you. This allows you to have money available to then provide services to your other consumers. Then when the customers do pay the factoring company receives their slice of the pie in form of the percentage they take from your invoice. The circuit never breaks.