All businesses, at one point or another, need help financially. While large corporations may not have a difficult time getting this help and bouncing back from a financial bump in the road, small business enterprises or SMEs may not have the same advantage. Traditional lending from banks and other lending institutions will need tons of requirements and a long application process that SMEs may have a hard time getting through.
This is where factoring can help. No matter how small or big a business is, financing through factoring is available for them in as fast as 48 hours. And the best thing? Businesses only need to take care of a short list of basic requirements to qualify for the service.
1. Invoices of Services Provided or Product Delivered
In factoring, you only need to provide your invoices to your trusted factoring company and they can then advance up to 80 per cent of the invoice value within 48 hours. They only require two things: that the invoice be for a service already provided or a product already delivered, and that the invoice not be more than 30 days old. A proposed project still to be completed will not qualify. There is a verification process involved where the factoring company will check with the client whether or not the job he was invoiced for has been completed. The invoices businesses submit must also be current.
2. Clients’ Excellent Credit Record
Unlike traditional lending where the business’ credit history determines whether or not they will get financing or not, in invoice factoring the client’s credit record is what’s considered. This is an advantage for small businesses who haven’t built a good credit history yet and may still have a number of loans in their pocket.
3. Spread of Clients
Spread and concentration of debtors also forms part of the assessment process when determining whether a factoring arrangement would be suitable. A well spread ledger is viewed more favourably, to minimise risk.
For traditional lending institutions the list of requirements may extend beyond the three listed here. In convenient debt financing though, businesses generally don’t need to go beyond this list. Even the factoring agreement differs in factoring. While banks or other lending firms require collateral, charge accounting and administrative fees as well as monthly audits, some factoring companies do not.
There are companies offering factoring services that give a flexible agreement where long-term contracts are no longer required, property security is not needed and a minimum amount is not mandated. The fee charged is also a flat fee and doesn’t included extra costs such as accounting fees.
With the short list of requirements demanded by factoring companies plus the flexible solutions they provide, businesses especially the small and medium enterprises now have a solution to their cash flow problems. No longer will they be halted by unpaid invoices and long paying customers. Now businesses can continuously offer their products and services to their clientele without cash flow issues standing in their way.
By Debra Wright
Debra Wright is a writer and avid blogger who broke into the realm of online marketing before it was cool. Wright has contributed to various sites and covers a diverse array of topics, from finance to business tips. She writes because she wants to know.