Unanticipated or unexpected growth may overwhelm a business, especially one that’s growing. Perhaps you’ve increased your marketing team and they’ve ably responded adding new accounts. As sales increase and expectations rise, so do the risks inherent in the business. However, there are ways a small business can more easily facilitate growth while minimizing all the corresponding associated pitfalls. One such way is to engage in the factoring services of a third party.
There are several business problems faced by owners of smaller enterprises that are vendors and manufacturers: Factoring can help a business dealing with the challenges related to things like timely payment, cash flow, collateral, and due diligence. In fact, (no pun intended), there are many ways factoring services can benefit a business. Today’s blog discusses one of these ways.
The reliance on vendors to timely pay their invoices is a risk of doing business, however, factoring eliminates the slow payment of invoices. While invoices typically clearly state payment terms as net 30 days, some accounts take longer to pay, perhaps a few or even several months. The collection process is very time-consuming, especially when it involves dealing with delinquent accounts. Small businesses often waste valuable resources such as manpower trying to collect these past due accounts.
Factoring is a valuable solution because it doesn’t increase the debt of the business since there is no loan involved. Because the business isn’t taking on a loan, there is no need or requirement for collateral. This facilitates cash flow which consequently better ensures the maintenance of the business’s daily operations, the heart and soul of its’ revenue stream. In a nutshell, factoring:
- Reduces time
- Maintains cash flow
- Allows for cash advances
- Doesn’t require collateral
- Lowers stress
With a factoring arrangement, a factoring company collects the account receivables of a business. For example, a company may have $40,000 of monthly accounts receivables for which the factoring company timely pays $35,000 each month. The factoring company assumes all of the duties and responsibilities associated with collection. In theory, this helps the business eliminate the time it would normally spend on collection to accomplish other important tasks. More importantly, the advancement of funds by the factoring company allows business owners to utilize sales revenue for the betterment of their business now rather than later.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to firstname.lastname@example.org or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.