When entrepreneurs are looking for working capital to fund their business, the first option is a line of credit or small business loans. But what will you do if you get rejected for a business loan? You will need to consider other finance options to assist your business in getting an instant influx of working capital.
One of the effective non-loan types of small business funding is factoring in Fort St John. Also known as accounts receivable funding, factoring is a viable alternative for companies to get money whenever they need it. However, you need to know the possible shortcomings before deciding to work with a factoring firm.
Factoring is complete doesn’t form of cash advance financial solution where businesses get Cash by trading their unpaid account receivable to a factoring firm known as a factor. The factor collects the invoices on behalf of the business. With factoring, rather than getting paid by your clients in the normal ways, your business agrees to offer the unpaid invoices to the third-party company(factor) that offers you funding upfront as a specific portion of the value of the unpaid receivables.
Table of Contents
How Does Factoring Work
Let us assume your business requires quick working capital and has $100000 in accounts receivable for a certain month. You can trade those invoices to a factoring company, which will pay you 75 percent of the value of the unpaid invoices upfront. An extra percentage of payment will follow this after the factor collects payment from your clients.
Factoring companies generate revenue by retaining a portion of the value of the invoices, mostly 2-6 percent. This means when it comes to factoring in Fort St John, you won’t have to give up part of your income for you to work with a factoring company. In our example, let’s assume that your factoring company charged you 6% of the value of the unpaid invoice; your business will get $75000 upfront. You will also get an extra $19000 within 30 days to 90 days after the factor collects all the payment.
Things to Consider
Factoring is prevalent in those industries where a slow-paying invoice is average. While factoring can be the best option for your business to raise an instant influx of cash, you need to consider the benefits against the drawbacks and costs of factoring in Fort St John.
Benefits of factoring comprise:
Instant Cash: factoring offers your business an instant cash influx. Rather than waiting for up to 60 days for your clients to pay, you can get instant Cash at once.
These are not loans. Factoring is different from loans, and it doesn’t affect your credit rating or needs you to make any payment.
Keep your equity: factoring doesn’t force you to sell your portion of your business or share equity like you would do when raising working capital from investors. Rather than securing a long-term loan, factoring will be a one-time decision to get money for your business goals.