Businesses frequently really need more cash than they have on hand. It might be for an emergency, a short lived opportunity or, occasionally, such normal events as a payroll to satisfy.<br/> The best ways to be prepared and eliminate a cash-flow squeeze? Short of possessing an ATM in-house, numerous firms are employing what once was a debatable strategy of getting hold of immediate funds.<br/>It's referred to as invoice discounting, and it's built on a straightforward notion. A small business sells its invoices or accounts receivable to a business that focuses on collecting their payments. That agency, called a factor, advances the majority of the invoiced level-- 70 % to 90 % is commonplace-- to the company after looking into the credit-worthiness of the invoiced party. After the bill is paid in full, the receivable factoring company forwards the balance to the client, less a transaction, or factoring, fee.<br/>The process can be fast. When the factoring company is satisfied that they will be paid, money from an invoice could be in the hands of the issuing client within 24 to 48 hours. Indeed, for many small companies, the biggest selling point of invoice discounting is not being shackled by slow-paying customers.<br/><br/>Help at the beginning<br/><br/> A number of establishments work with invoice factoring to get going. Since it is the financial stability of their customers that most interests a receivable factoring company, business firms with scrimpy history can notwithstanding sell their receivables.<br/> Though it has assisted many companies get on their feet, many that have factored accounts receivable to meet their cash-flow needs point out they viewed it as a stopgap measure.<br/>"It's something we will remove ourselves from over time, as we're equipped to develop other financing-- which we're working on," says a small company owner.<br/><br/> Maybe chief among accounts receivable financing versus invoice factoring's shortcomings is its cost. A factor can charge a couple of percentage points greater than a conventional loan provider.<br/>"We know we're not the cheapest form of funding," says a factoring company owner. And for a few clients, he adds, "we're a momentary remedy, not a lasting option." But he and other factoring companies can name lists of clients who have been with them for many years-- some because they consider banks as being " unpleasant.".<br/><br/> Invoice discounting's origins go back thousands of years, to the Mesopotamians. It was also a significant resource of funding for American colonists who would transport furs, lumber and tobacco to England. Subsequently, some of factoring's leading users was the U.S. garment industry, where the time period between getting hold of cloth to be made into a suit, say, and being paid for the final product could be many months.<br/><br/> Now, though, the process is at work across the commercial landscape. Some receivable factoring companies concentrate on certain types of businesses, for instance, transportation, staffing or health care. Trade sources estimate that billions of dollars in accounts receivable will be factored this year.<br/><br/> Shifting Ties.<br/><br/>One factor cited for invoice factoring's increased level of popularity is what a number of owners say has been the breakdown of the personal relationships that once defined business banking. A decade or so ago, a business owner recalls., says he could call his bank and say, "'I need $50,000 in my account,' and they would most likely say, ' FINE. The next time you come in you can sign the requisite records.' ".<br/> These days, he says, he 'd have to do the paperwork before getting the dollars. "That makes factoring more attractive to a guy like me," he says.<br/><br/> Using a factoring company isn't for all of us. It probably wouldn't be economical for a business that sends hundreds of small-denomination invoices, due to the service fees a factoring company might assess for checking every one for risk.<br/>Another discouraging factor a few point out is a negative symbolism tied to invoice discounting's garment-industry heritage, where companies factoring frequently were identified to be financially fragile. A comparable commonly held impression is that a firm utilizes a factor because it isn't credit-worthy adequate to work with a bank.<br/><br/>The U.S. Small Business Administration says it doesn't have a position on accounts receivable financing versus invoice discounting as a funding resource. Having said that, it contends that a few enterprises "may be able to find more advantageous terms and conditions through the use of an SBA-guaranteed business loan.".<br/>Advocates point to numerous ways receivable factoring can save a business cash. Since the factoring company handles credit checks and bill collections, a company can reduce its overhead by not having to staff for that in-house. Furthermore, because factors won't take a risky invoice, firms can stay away from the problems-- and losses-- that can be found in working with a customer who ends up being a deadbeat. In those circumstances, factoring becomes a safety net.<br/><br/>" Whenever we get a brand-new customer we forward the name [to the factoring company] and they check them out at once," says a company owner, who has sold accounts receivable for a decade or more.<br/>Depending on what his factoring company learns, it may recommend a maximum line of credit his company should extend to a customer. And while that quality control may deter the business owner from a sale, the invoice factoring business is " truly doing us a favor," he says. " Or else, if somebody doesn't pay, you need to have an attorney chase them, and it comes out of my budget.".<br/><br/> Using a factoring company can possibly be a great help for those who intend to do business overseas but worry about being paid. That's especially true for smaller firms that have very little or no experience abroad, or lack the financial means or networks to collect from a customer thousands of miles away.<br/>The firm owner says he typically uses receivable factoring to earn discounts for his company by paying for large quantities of supplies upon delivery, knowing that he can cover that check by factoring invoices. On a $120,000 truckload of steel, the discount could be $6,000 or so, he says. That's more than enough to cover his factoring costs, he says. "So I'm using the factoring company's money to make money," he says. Companies also can save hard earned cash by paying cash on delivery, of course-- something invoice discounting may facilitate.<br/><br/> Also one-person operations can profit from factoring. a lawyer who provides court-appointed work for indigent people, uses a factoring company to collect from the courts and other government agencies.<br/>"You can't usually bill before a case is over, which might be anywhere from two months to a year," he says, noting that his bills often http://businessinvoice.org can run to several thousand dollars. Of factoring as a business tool, he says, "For anyone who has a huge cash-flow problem, I would strongly recommend it.".