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Business Financing: Spot Factoring

Accounts receivable factoring (or invoice financing) has been around for centuries as a means for small and large businesses to obtain needed working capital while they wait for their customers to pay invoices.

If your ship goods or render services to your business customers but have to wait 30, 60, 90 days or more to get paid (as most invoices offers these trade terms) and your business could use additional capital today to complete other jobs, meet payroll or go out and win new business, then your company could benefit from accounts receivable factoring or financing.

However, in recent years, not all invoice financing has remained the same.

Most accounts receivable factoring companies (like most banks) realize that it costs them the same to underwrite a $1,000 factoring agreement as it does a $1,000,000 agreement. Thus, they tend to migrate to larger deals (getting more bang for their buck so to speak).

Thus, many invoice financing companies have begun to add restrictions that just were not there a few years ago.

Some of these restrictions include:

Minimum Factoring Amounts: In fact, many accounts receivable financing companies require a minimum $50,000; which is OK for larger companies who have those larger amounts to factor. But, smaller firms, just wanting to factor an invoice or two, again get left out.

Long-Term Commitments: As underwriting accounts receivable financing can get expensive on the lender’s part; we have begun to see long-term commitment requirements crop up in factoring agreements. These usually require that the borrowing company not only factor a minimum amount of their invoice (see the point above) but factor those amounts over an extended time period, say one year or more (which could mean factoring many cycles of invoices).

Upfront Fees: Factoring companies, like many banks these days, are learning that fee income is the best income because it costs very little to get and usually flows almost directly to profits.

Now, some companies will tell you that these fees are to offset their costs of underwriting so that they do not have to pass those costs along to you. But, do know that all costs (underwriting through servicing) are captured in the financing company’s factoring rate.

Over the last decade, we have seen upfront fees from invoice factoring increase from small amounts like $50 to over $500 – regardless if your business receives financing or not.

Choice Of Invoices: Most factoring companies want to reduce their risk of not getting paid. This is somewhat understandable as they are taking a risk on the fact that your customers (not you) will pay their bills.

Thus, these financing companies will ask to look at all your outstanding accounts receivables and then hand pick those invoices that they think will provide them the least amount of risk of repayment. This means that they may choose some invoices that you don’t want to factor while leaving you in the lurch for those invoices that your company really needs to factor.

What these restrictions tend to do is create added benefit for the factoring company while placing more burdens on the borrower (growing small businesses) or shut out smaller businesses from the financing market all together.

It really is simple – conform to their policies (meaning factoring more of your invoices for longer periods) or don’t get the capital your business needs to continue to grow.

In Steps Spot Factoring.

Spot factoring is essentially designed as the name states. Your business can factor whatever invoices it chooses (to solid business customers) when it chooses – on the spot!

Thus, you factor your accounts receivable only when you need immediate cash. Plus, you can factor just one invoice or as many as you need to benefit your company. Essentially factoring your invoices on the SPOT!

Benefits include:

No minimums or maximums.

No long-term commitments.

Quicker funding decisions as the application process tends to be shorter.

No upfront fees. And,

Flexibility of what invoices you factor and when you factor them.

But, the real benefit is that it provides your business additional flexibility to obtain the capital that you need when and how you need it – not how the factoring company wants it. Plus, by factoring when and what YOU want, you can reduce your overall interest costs and fees.

Now, this is not to say that accounts receivable factoring might not be beneficial to your company. If you have a large amount of invoices that you want to finance and that you need to do this over an extended time in the foreseeable future, then standard accounts receivable factoring can save you both time and expense.

But, if you don’t qualify for these new restrictions or only need / want to factor an invoice here or there to make ends meet – then spot factoring will be your best choice when your business needs immediate working capital.

5 Reasons Why You Need To Start A Business Today

Entrepreneurship entails strength to conquer the odds and courage to carry on until success is achieved. It involves an ‘extraordinary’ element of starting something new; particularly one that could significantly impact one’s life.

There are people who are fed up about the idea of working for someone else and wish that someday, they could live with more freedom and fulfillment. Others are fueled with the desire of making a dream or perhaps an idea come to life. Lack of employment could also influence people to think about starting a new business.

Start a business – how does this appeal to you? While the concept seems to be really interesting, many people tend to be overwhelmed at the thought, but later on ignore it. As a result, they never get to start their so-called ‘dream’ business.

The idea of starting a business should not remain as an idea. You have to act on it and the best time for this, is today. You have to choose to start right away or you may lose some of the best opportunities attached to it.

Well, why do you have to start off now? Presented below are the reasons why you need to start your business today and to decide not to postpone it to some other time.

  • The Trend of the Economy. Look at the trend; after suffering from economic recession for about ten months, the following months revealed significant growth. This means, should 2010 be a year of crisis, expect this year to show considerable increase in recession as well, a perfect time for you to consider creating your own business.

  • The Affordability of Almost Everything. You will be amazed at how the prices of almost everything have gone cheaper. In fact, there is always room for negotiations and better deals. This is very important when you start a business.

  • The Opportunity to Hire Highly Qualified People. The high unemployment rate can be used to your advantage. You can offer potential employees shares on the startup business. This strategy is an effective way of engaging topnotch professionals at reasonable payroll costs. On top of that, they are motivated to give their best since they have ownership over the business.

  • The Tax Considerations. These privileges should not primarily urge you to open a business. But take note that entrepreneurs do benefit from personal income taxes. So, if you are passionate about something and have been investing on it, then, it would be a wise choice to convert that ‘hobby’ into a business with deductions that don’t hurt as much.

  • The Solution to Your Problems. Losing your job can be very depressing. But, why not turn that problem into something more rewarding. Take a look at your resume and then think about how your experiences can give you a profitable business.

There could be endless reasons why you need to start your own business. Consider this: Every entrepreneur has his own unique way of starting his business. One thing is real and common – all of them promptly went through the process of starting up.