Factoring: Relevant For Economic Recovery?
Economic recovery occurs when businesses have working capital to market and sell their products or services, to expand and ultimately to hire more workers. When credit markets are tight and the economy is slow, a business can find it hard to access the money it needs to keep moving in general let alone in a profitable direction. How can factoring help?
Accounts receivable factoring, or invoice factoring creates positive cash flow and can allow the business to expand without incurring debt or to access operating cash when traditional bank funding is hard to find. Accounts receivable factoring is not a loan, but a discounted purchase. Here‚Äôs how it works. The business sells its invoices to an accounts receivable factor for 95 to 99% of their face value. The factor pays the business immediate cash and the business does not have to wait 30, 60 or even 90 days to collect the payments. Also, the factoring firm normally takes on the risk of servicing and collecting the outstanding accounts receivable payments. A business that has consistent cash flow during an economic slowdown will be able to survive and stimulate economic recovery. They will be able to fund or even expand their marketing budget, buy more raw materials, better their operations, strengthen their profits, purchase supplies, retain their employees and meet financial obligations on time. This cash flow not only gives them a competitive advantage over those waiting to collect on their invoices, but it also strengthens the economy as they can reinvest the cash into their business.
Other Benefits of Accounts Receivable Factoring
Types of Businesses that Can Benefit from Accounts Receivable Factoring
Accounts receivable factoring works well for companies with up to 100's of millions of dollars in annual sales, but any business can benefit from it. Here are some of the businesses that can effectively use factoring to create immediate cash flow.
As you can see, the working capital that accounts receivable factoring creates can be a key to your businesses surviving and eventually thriving in an improving or challenging economy. Factoring can also stimulate economic recovery across the board as it infuses cash into businesses struggling to turn a profit and keep workers employed. Profitable businesses with liquid cash and employed workers will go along way in helping a struggling economy to recover.
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