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McGunagle, Reidy & Hentz, Ltd.
2088 Broad Street, Cranston, RI 02905-3342
PH: 401.941.2088 - FAX: 401.941.0017
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How To Finance Your Business With A Factoring Company
Finding the right type of business financing for your company can be a major challenge, especially in the current economic environment. Understandably so, institutions are behaving cautiously and only providing business loans to their prime clients. To qualify for a business loan, companies have to show that they have solid balance sheets, stable (or growing) income and an experienced management team. These requirements put small and medium sized companies in a competitive disadvantage since few will have the financial stability to qualify for financing, especially in today's marketplace.
A business loan is not always the best solution to cash flow problems, especially if these are caused by slow paying clients. In most commercial transactions, clients have to pay their invoices in 15 to 30 days. However, most companies have been extending their payment terms to 45 or 60 days as a way to cope with the current credit crisis. Small businesses have been affected the most, because they can't afford to wait 45 to 60 days to get paid. The need the funds immediately to fulfill their own obligations.
Factoring financing could be a good solution If the company's biggest problem stems from cash flow and clients that take too long to pay. It is very different than a business loan. With factoring, a financial intermediary called a factoring company buys your invoices for an immediate payment. They wait for your client to pay the invoice and settle the transaction, while you get the benefits of the immediate funding. Most factoring companies will charge a fee for their services - usually a percentage based on the invoice.
One of the biggest advantages of working with a factoring company is the way the structure their transactions. Since they buy your invoices, their biggest concern is the credit quality of the company paying for the invoices. This allows you to leverage your client's commercial credit and make it work to your advantage. Thanks to this structure, small companies that have a solid list of clients can usually qualify for this type of financing.
Factoring can be an ideal solution for companies that can't afford to wait 60 days to get paid and that sell to solid commercial clients.
By: Marco Terry
McGunagle, Reidy & Hentz, Ltd.
2088 Broad Street
Cranston, RI 02905
401-941-2088 | Fax 401-941-0017