Working capital is the lifeblood of every business no matter how large or small. This is the key to growth and expansion. Large businesses with well established credit histories have a number of options when they need a capital injection.

However, small or newly formed companies don't have it so easy. The lack of adequate working capital prevents a number of small businesses from taking advantage of lucrative opportunities that come along.

Take for example, a small service company that is running well, but doesn't have much in the way of normal assets to pledge as collateral for a loan or a line of credit. In the door walks a new corporate contract that might double their sales. However, first, more personnel and equipment will be mandatory to fulfill the contract and, secondly, the customer's payment terms are net 60 days. Where does the business owner do?

If they have no commercial credit available and no more personal credit available and all the friends and family are tapped out, they are stuck! Or are they? Instead of trying to take on more debt for this situation, the alternative of accounts receivable factoring can be the most powerful solution.

Accounts receivables, or invoices, are assets that can have immediate cash advances paid against them by someone called a factor. In short, the factor agrees to collect on the invoices and advances the company between 75-80% of the value of the invoices. When the invoices are paid to the factor, he pays the company the balance due less a fee.

The company has immediate working capital to carry out the contract and has no additional debt to pay off. This process can go on for as long as the company needs. At some point, they will have built up their creditworthiness and their working capital flow to an extent that they no longer need to factor their invoices. But for that interim period, this provides the perfect solution to growth and expansion.


Posted by: Webguru    Source

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