Invoice Factoring Tips for Small Business Owners
There was a recent survey asking successful entrepreneurs what they personally believe affects the success or failure of a startup business today. The 549 founders of different organization came from all industries, such as computing, electronics, aerospace and health care. For them, the primary factors to success are: learning from past mistakes and successes, work experience, good management team, and good luck. Moreover, 98% of them mentioned the significance of prior work experience. Interestingly, a tactic known as invoice factoring was mentioned by some of these respondents.
On the government’s Small Business Administration (SBA) website, many questions were posted; among them is “how do I get a small business loan or grant?” How do I get started in a business? What are some proven tactics that can help me attract investors for my business? What kind of interest rate, terms or charges does the SBA require on its Guarantee Loan program?
Following are few of the real tried and true financial aids that can help any business grow, as small business entrepreneurs head into the year 2010.
First and basic of all, do not waste money. Have good financial strategies prepared – those that can help minimize operating expenses – and stick to them. Be mindful of your expenses, ascertain that you are not paying double for anything. Analyze the year in quarters, then set aside time each quarter to evaluate your expenses. By doing so, you are more likely to find areas where you can save on costs. For example, do you rent or lease a vehicle? If so, be aware that purchasing a company car is a more strategic move because in can be reflected on your company tax returns and can be depreciated. You’ll get a higher return on your investment after the vehicle has been paid off, than if you lease. But think about leasing your company’s computers, which is normally a tax deduction, so that you can always trade them in for newer ones when the time comes.
The next financial business strategy is to start invoice factoring your outstanding invoices. An invoice that won’t be paid for 60 to 90 days isn’t doing your company any good today. But if you’re lucky enough to find a factoring company that will buy more outstanding invoices, then you can certainly use the funds to grow your business. Many factors nowadays do what is referred to as “single invoice factoring” where they will spot one invoice at a time.
Accounts receivable factoring is especially helpful if you need cash immediately since once a factor receives your application and reviews your invoices, you can receive payment within as little as 24 to 48 hours after they’ve pre-qualified the vendor that owes you the money. In this financial option, your credit history isn’t evaluated, but your clients will be – so be certain that they are as creditworthy as they can be.
Factoring companies, similar to a bank or any commercial financial institution, charges a fee for its services. Be prepared because firstly, the factor will examine your invoices and the creditworthiness of your customers. You should be prepared to show the factor the following: 1) A current financial statement; 2) An accounts receivable aging report; 3) A certificate of incorporation or partnership agreement; 4) Proof of insurance; and 5) Invoices and other business documents.
A factor shall take charge of collecting your receivables, so they’ll want to make sure your customers pay their invoices on time. Once it is clear which invoices will be due for factoring, then the factor will advance you the funds, say 80 percent now and 20 percent later, when the customers pay their invoices.
Charges for this kind of service range anywhere between 3% and 7%. The variation of the fees collected depends on a lot of factors, size of invoices, creditworthiness of the customers, number of days until the invoice is due (30/60/90), to name a few.
You can check out www.ifgnetwork.com to learn more about invoice factoring.
