Factoring. Cash Without Borrowing

How to Increase Cash Flow Without Borrowing

Cash flow is one of the main reasons businesses fail. At one time or another, every business, even successful ones, have experienced poor cash flow. Cash flow does not have to be a problem any more. Do not be fooled — banks are not the only places you can get funding. Other solutions are available and you do not have to borrow.

What is Factoring?

One solution is called factoring. Factoring is the process of selling accounts receivable to an investor rather than waiting to collect the money from the customer.

Oh, the Irony…

Factoring has an ironic distinction: It is the financial backbone of many of America’s most successful businesses. Why is this ironic? Because factoring is not taught in business colleges, is seldom mentioned in business plans and is relatively unknown to the majority of American business people. Yet it is a financial process that frees up billions of dollars every year, enabling thousands of businesses to grow and prosper.

Factoring has been around for thousands of years. Factors are investors who pay cash for the right to receive the future payments on your invoices.

An unpaid receivable or invoice has value. It is a debt your customer has agreed to pay in the near future.

Factoring Principals

Although factoring deals exclusively with business-to-business transactions, a large percentage of the retail business uses a factoring principal. MasterCard, Visa, and American Express all use a form of factoring in their retail transactions. Using the purest definition of the word, these large consumer finance companies are really just large factors of consumer paper.

Think about it: You make a purchase at Sears and charge it to your MasterCard. The store gets paid almost immediately, even though you do not make payment until you are ready. For this service, the credit card company charges Sears a fee (typical fees range from two to four percent of the sale).

The Benefits

Factoring can offer many benefits to cash-hungry companies. Rather than wait 30, 60, 90 days or longer for payment on a product or service that has already been delivered, a business can factor (sell) its receivables for cash at a small discount off the amount of the invoice.

Payroll, marketing efforts, and working capital are just a few of the business needs that can be met with this instant cash.

Factoring provides the means for a manufacturer to replenish inventory and make more products to sell: There is no longer a need to wait for earlier sales to be paid. Factoring is not just a cash management tool for manufacturers: Almost any type of business can benefit from factoring.

Generally, a business that extends credit will have 10 to 20 percent of its annual sales tied up in accounts receivable at any given time. Think for a moment about how much money is tied up in 60 days’ worth of invoices: You cannot pay the power bill or this week’s payroll with a customer’s invoice, but you can sell that invoice for the cash to meet those obligations.

Factoring is a fast and easy process. The factor buys the invoice at a discount, usually a few percentage points less than the face value of the invoice.

The Drawbacks

People consider the discount a small cost of doing business. A four-percent discount for a 30-day invoice is common. Compared with the problem of not having cash when you need it to operate, the four-percent discount is negligible. Look at the factor’s discount as though your business had offered the customer a discount for paying cash. It works out the same.

Companies consider the discount the same way they treat a sales price: It is simply the cost of generating cash flow, much like discounting merchandise is the cost of generating sales.

Factoring is a cash flow tool used by a variety of businesses, not just those who are small or struggling. Many companies factor to reduce the overhead of their own accounting department. Others use factoring to generate cash, which can be used to expand marketing efforts and increase production.

Why Factoring Appeals to the Start-Up

Factoring is especially appealing to young and rapidly growing companies. Since the process shortens their business cycle, these businesses can grow faster. The ability to make more products to sell while waiting for invoices to be paid is largely eliminated. Such businesses usually net much more profit with factoring than without, even when the discount is considered.

Factoring vs. Bank Loans

So, why not simply go over to the friendly banker for a loan to alleviate cash flow problems? A loan can be difficult if not impossible to receive, especially for a young, high-growth operation, because bankers are not expected to decrease lending restrictions soon. The relationships between businesses and their bankers are not as strong or as dependable as they used to be.

The impact of a loan is much different than that of the factoring process on a business. A loan places a debt on your business balance sheet, which costs you interest. By contrast, factoring puts money in the bank without the creation of any obligation. Frequently, the factoring discount will be less than the current loan interest rate.

Loans are largely dependent on the borrower’s financial soundness, whereas factoring is more interested in the soundness of the client’s customers and not the client’s business itself. This is a real plus for new businesses without established track records.

There are many situations where factoring can help a business meet its cash flow needs. It provides a continuing source of operating capital without incurring debt, which can result in growth opportunities that dramatically increase the bottom line. Virtually any business can benefit from factoring as part of its overall operating philosophy.

Every good businessperson must understand the concept and benefits of factoring in order to operate as profitably as possible. The following chart can help you understand the differences between factoring and other sources of funding.

Things to Consider Before Hiring a Web Developer

If you run a business, big or small, it is quintessential to have an online presence. This article provides you with a list of things to consider before hiring a web developer for your business project.

Feature rich and interactive web presence can attract potential customers and retain the existing consumers. But building a sound web store is not something you should take lightly. You are about to launch your brand identity on the virtual world; so make sure to craft the best designs to grab the attention of online audience. That is when you need to start searching for a reputed company offering web design and development solutions. But as you may know, IT companies are dime a dozen and it is a challenging task to choose the right partner from the overwhelming range of options. That is why you should take a few things into consideration before kick starting the hiring process.

Money always matters, right? Set a feasible budget for the web development project you are about to outsource. Opting for cheap quality web services for the sake of saving money can be a big mistake as the end results will affect your business in the long run. Hence, you should have a clear idea about the amount you are willing to spend.

Learn the basic terminology. It is true that you are planning to hire a web developer because you lack the technical expertise. But if you want to establish an effective communication and convey your needs clearly, then a basic understanding of technological terms is necessary.

Define your needs. Are you planning to launch an online store or an informative web portal? Is it going to be interactive? Ask yourself a lot of questions in order to figure out your web design and development requirements. If you are not clear about what you want, then it will affect the output of the potential web development project.

Consider the content management systems. Do you want to hire a developer permanently so that he can be brought in for changes and modifications? Or would you like a user friendly format where you can make the changes on your own? Are you looking forward to build the website on open-source technologies or enterprise management platforms? Similarly, decide the major components of your website structure wisely so that the developer can work around it.

Last but not the least; before you hire a web developer, provide them with some examples or samples which in turn would help the professional to a get a better understanding of what you are looking for.

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Discover The Top 3 Tricks For The Best Web Design Even If You’ve Never Held a Mouse Before

Are you having any kind of nightmares setting up your website? Or maybe you have done the design but still aren’t satisfied with what you did? If any of these sounds like you then today is going to be your lucky day for sure. There is a mystery about web design that only a few number of web masters do understand and that is the reason why they are having successful websites all across the web. You are about to discover some of the tricks and secrets that have been kept away from you all this while so as to enable you successfully get your website up and running today.

What web page editor are you using?

Some website editing applications can be very frustrating especially if you happen to be a beginner. So many webmasters in the making don’t seem to grab the secrets behind getting their websites up and running. The truth is that you need a website that will be successful over time and not some fancy looking page that you may not benefit from in the long run.

There are lots of website editing applications that will ease things up for you. Don’t go for the ones with complex to understand backgrounds because as a newbie you may just get discouraged eventually.

Learn to go for a blog

So many webmasters in the making don’t just seem to understand the difference between a traditional website and a blog. While some think that blogs are just free to operate which means that they may not be effective and result oriented, others are thinking that websites are much better than blogs.

Do you know that a blog is better than a traditional website? Still doubting? In fact most of the pages you are seeing today aren’t traditional websites but blogs. The best thing about them is that you don’t need any kind of HTML knowledge to set up one and they are much more search engine friendly.

If you know that you can’t do your very own design or maybe you feel confused about the whole technical jargons that have to do with creating a website, the possibility of creating a blog is there to actually offer you an escape route. Imagine building your website with just one or two clicks and installations in matter of minutes.

If you can’t do it yourself then outsource it to professionals

Many times you keep on struggling with building of websites even when it looks like you don’t seem to grab any of the concepts behind making them work effectively. Do you know that there are persons and organizations that can build your website for you at dirt cheap prices? Don’t worry about the quality because nothing will be compromised.

These people are dirt cheap and effective in web design that you will be wondering what took you so long to discover them. It is simple! Save yourself the stress of making one and hand everything over to them and you will never regret you did.

Are you struggling to have the perfect web designs which will keep your customers coming to your website every day and night? Relieve yourself of all the hassles by handing everything over to a reputable and trusted company in the business of building websites from scratch. To learn more please visit SpiralClick.