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Accounts Receivable Financing: A Small Business Bailout Plan.

Small businesses no longer have to be victims of their own success. Factoring services are also known as accounts receivable financing, and no matter what you decide to call it, these services can provide many small businesses with their own bailout plan to survive these tough times.

Many businesses are facing what the government is calling "immediate hardship" can apply for loans of up to $35,000 through the Small Business Administration's America's Recovery Capital (ARC) program, as part of President Obama's bailout strategy. The terms include no payments for the first year, and no interest, however not everyone qualifies for ARC.

Accounts receivable factoring, or financing, on the other hand, provides short-term working capital and is an extremely fast way to turn accounts receivables into cash. This can put a small business suffering hardships from the economic downturn into the red, making it difficult to meet payroll for employees, order new supplies needed to keep doing business or even the most basic bills. Most Fortune 500 companies have not experienced as many problems surviving as small businesses, but it is especially challenging for one or two-year old businesses that are in the heavy growth stages. Most small businesses do not get paid immediately for delivered products or services for 30 to 60 or 90 days. Accounts receivable financing benefits businesses that do not get paid by advancing up to 90 percent against invoices. A factoring company looks at the creditworthiness of the client's customers and can fund within as little as 24 hours. The company does not expect to buy 100 percent of a company's receivables, and there are no minimum or maximum sales volume requirements.

Accounts receivable factoring has become a highly effective cash management strategy, particularly in the construction industry and for sub-contractors who often experience cash flow problems: meeting payroll, buying supplies, paying benefits and Workers Compensation. Factoring allows businesses to obtain funds based on the funds they expect to have coming in, or their current accounts receivable.

Invoice factoring is different from a traditional bank loan or the SBA-backed ARC loan in that bank loans involve two parties, while factoring involves three parties. Banks base their decisions on a company's credit worthiness, whereas factoring is based on the value of the receivables. Factoring is not a loan - it is the purchase of a financial asset, or the receivable.

Factoring companies typically look at the creditworthiness of a client's customers and pays within as little as 24 hours. They do not expect to buy 100 percent of a company's receivables, and there are no minimum or maximum sales volume requirements. The professional rates are competitive because each client's circumstances vary, which may have an impact on the fees charged. The program allows choices of invoices to be factored, enabling customers to retain most of their money, while spending the minimum fees to guarantee adequate cash flow.

Standard accounts receivable factoring has been around for more than 4,000 years. Factors begin the single invoice factoring process with due diligence that typically takes one to two business days. Once completed the client is at liberty to offer invoices to IFG for purchase. Upon receipt of invoices, the factor checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by the factoring company and the client receives their funding. At the end of the credit period, the debtor completes the transaction by paying the factoring company directly.
In the end, the difference is that if a small business gets involved with a government ARC loan, the funds have to be paid back at some point. Whereas accounts receivable financing is a business strategy that can prevent them from ever having to get a loan, because invoice factoring provides short-term working capital on an as needed basis.
For more information about accounts receivable factoring, call The Interface Financial Group (IFG) at 877.210.9748.

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