Improving your cash flow in the year 2010 should be a main concern, as well as collection efforts or even getting professional assistance with financial forecasting. But there is one strategy that works every time: accounts receivable factoring.

When these options aren’t sufficient, factoring can help. For any company strapped in cash, selling accounts receivables or invoices to advance funds is a good and reasonable idea. After all, you could always make use of the money now (rather than waiting for 60-90 days) to buy supplies and keep the business running.

Like any other type of financial assistance, factoring comes with a price – but this is small as compared to the one that you have to face in case of a loan. Factoring companies will charge you fees as payment of availing of their services.

Here’s how accounts receivable factoring operates: first, the factor, such as The Interface Financial Group (IFG) will want to examine your invoices and also check the creditworthiness of your customers. Then, you should be ready with these documents: current financial statement, accounts receivable aging report, certificate of incorporation or partnership agreement, proof of insurance, invoices and other relevant business documents.

Because it is the factoring companies that will take on the responsibility of collecting the receivables, they want to protect themselves and ascertain that the invoices will be paid on a timely fashion. Once you know which invoices the factor will purchase, the factor will normally pay you in as little as 24 to 48 hours.

For instance, the factor might pay you 80 percent of the total amount of your invoices and then reimburse you the other 20 percent when your customers pay their invoices. They of course, will subtract their fee.

The price of this type of financial solution ranges anywhere between 3 and 7 percent of the total amount of the invoices. Fees shall of course vary, depending on the size of the invoices, the creditworthiness of the customers, and the number of days in your cycle, to name a few.

Bear in mind,however, that not everyone will benefit from accounts receivable factoring. For one, it is limited to B2B organizations. Second, interest rates are almost always larger than those imposed by traditional bank loans. But, since a large percentage of factored invoices are paid for within 90 days the total amount of interest paid is generally smaller than that of a longer term bank loan.

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It is very difficult for a new small business to even get approved for a loan. You may have heard that Bank of America recently extended over $12 billion in credit to small businesses, and they consider a small business to be one with revenues up to $20 million. But the reality is that most small businesses do not qualify.

Anyone would rarely think about invoice factoring, or accounts receivable funding, when his/her business would need cash flow or a working capital for the business. Why is this so? The answer is simple: most people immediately think of a bank when they seek financial aid.

Accounts receivable factoring isn’t a typical “bank product” so this alternative is confusing for several business owners.

A business owner seeking working capital typically looks for a specific amount of money – otherwise known as a line of credit or credit limit. Traditional funding strategies dictate limits on funds available based on the pledged collateral assets.

Getting small business loans is beneficial for one who basically needs a lump sum of money immediately. It would be very fortunate of you if you can immediately obtain one. These days, on the other hand, this is a very challenging feat. This is where small business factoring can help you – by giving you steady and reliable cash flow. And the cost of selling your invoices or factoring them in exchange for an advance of the funds? just a small percentage of the invoice value.

One of the advantages of invoice factoring over standard business loans is the fact that it’s easy for you to gain access to funds. In business loans, you need to wait days before the amount will be reflected in your bank account. A factoring company provides funds within twenty-four hours of invoices being issued. In a small business loan, however, you can only borrow a fixed amount and if you go beyond that limit, then you’re obliged to talk to your lender once again.

Small businesses who borrow against invoices through factoring know that it is a more flexible solution because as their sales grow, their business grows. Borrowing against your invoices using factoring offers a flexible approach, and in turn, you can concentrate on generating more sales instead of chasing payments.

Now, if you’ve considered this method over other financial alternatives (like business loans, overdrafts), know that first and foremost, the factor company will take a minimal percentage out of its value. Additional fees may be incurred if you choose to outsource credit management. It’s still significant to take out credit protection – even if the factor company will fund your invoices, you will still be liable for bad debts should the payees not pay.

Borrowing the funds to finance your business through its different growth stages as well as the economic forces can be achieved in a lot of manners, but invoice factoring is becoming more popular, because it’s an easy way to swiftly measure the return on investment (ROI). Also, there are no loans to pay back.

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