The ill effects of recession and a credit crunch is felt by businesses big and small. No one is spared during these difficult times and therefore it is very important for you to take a few steps to sustain your business through these hard times. One of many ways to keep your ship sailing is to avail of factoring services. Factoring can help you manage your funds better. Your working capital needs can be taken care of by wisely distributing you invoices to be factored over a period of time as and when the need for funds arises.
Factoring involves selling one of your asset i.e. accounts receivables to the factoring companies. These companies will buy your invoices and give you an advance payment of 85% to 90% of the invoice value. Once they receive the payments from your customer you will be paid the remaining amount. A factoring fee is deducted from the amount. The initial amount is wired to you in 48 hours. The initial paper work to build a relationship with the factoring company may take approximately 2 weeks. After that, assuming your invoices are from good customers, you can easily obtain your funds in no time.
Once you start factoring, you should carefully determine when the funds would be required. You ought to schedule what invoices to sell and when. Rather than selling off all at once, planning their sale as per your need will ensure that you have something in hand to stand you in good stead in an emergency. For this you should keep a tab on your cash balances regularly. Preferably maintain a sufficient balance to last for at least 3 months in case of any further financial ups and downs. With factoring, your funds can be made available in a short span, so keeping some invoices for future needs is a good option.
Your collections for those invoices that may not have been factored should be pursued actively. By doing so you can ensure that you receive payments on time. You need to follow-up with customers wherever necessary. Similarly, by using the factoring services you can even obtain enough funds to pay your creditors. This can get you some good discounts for prompt payments. Any amount of money saved from these can also be of great help. You should also manage your creditors sensibly, ensuring your profitability in the entire process of factoring and payment to creditors.
Do not rely on the banks entirely for the funds. They may not be able to provide you with funds in a short span of time, when you need them urgently. You may be able to take the opportunity of bagging a bigger contract if you choose to factor your invoices. Similarly, your accounts receivables are reduced from your balance sheet and there is a lesser amount of bad debts. This indicates a better financial position and new companies may be interested in dealing with you because of your sound condition.
With factoring you have a very good facility in hand which you should carefully and wisely use to survive the recession.
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