Financing is very important to businesses, especially those that are just starting up and are in needs of funds to start up and keep their business going until they start making a profit. Financing is the money that a business has to spend on the needs of their business. As soon as the idea for a business is thought of, there needs to be money to get it started. In addition to the money need to start the business, there are the everyday business expenses.
To start a business, the business owner needs funds to pay employees, purchase assets, and buy materials. As a business develops and grows, they need funds to keep up with their competitors and to meet the technological needs of their company. They also need money to create, market, and sell new products and to expand their businesses into new markets. Lastly, a business needs money when they are acquiring or taking over another business and for expenses that come with moving to a new location that include: renting moving vans, relocation funds for employees, and the installation of machinery. Two of the types of financing that can help a company acquire these funds are accounts receivable financing and purchase order financing.
Accounts receivable financing is designed for businesses that want to improve their cash flow by not waiting 30, 60, or 90 days for a customer to pay. It is a part of almost every business today that sells business-to-business or business-to-government. It is understandable that a company has other different operating costs and that can’t wait. In this case it will be reasonable to use help of a company that has specialization in getting a staffing agency in order to stop searching for staffing factoring companies and start factoring with the experts that will be ready to help to growing any business.
It is not a loan and it is different from borrowing money in that a business’s account receivable (invoices) are sold at a discount instead of just being offered as collateral. It is the same concept as offering a discount for early payment of an invoice, only now business’s get the funds in twenty-four to forty-eight hours and it does not depend on whether or not their client’s pay them early. There is a set process in place for accounts receivable financing.
After a business’s account has been opened, the following steps are the regular progression of how the process works. First, an invoice is created for the goods or services delivered. Then a copy of the invoice is submitted by either email or fax. After that, the factor ensures that the customer is creditworthy and are willing and able to pay when the invoice is due.
The next step is the business is wired a cash advance (usually seventy to eighty-five percent) The cash advance amount will be predetermined with the quote. Factor will then do the administrative work of collecting the payment. Then the payment is given to factor when it is due. The last step is the payment is remitted to the company minus the discount fee. The discount fee will also be predetermined with the quote. What accounts receivable costs and the benefits of it are important to know.