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How you can use your business’s accounts receivables to raise much needed working capital

You own a business and you hardly have physical assets that you can use as collateral for a bank loan. You have given credit terms to your clients, but you need instant injection of cash in your business to keep it operating. Where do you turn? This is where you should consider factoring your invoices! Your receivables act as your collateral. By using your accounts receivables as collateral, you can raise money for any working capital needs.

With pledging accounts receivable, you will use your customers’ credit accounts as the collateral you need to obtain cash.

Factoring invoices works to offer a solution to companies that have cash flow problems due to slow-paying commercial clients (or clients that you have given credit terms). It works by providing an advance on these invoices – as you wait for your clients to pay. This provides immediate cash flow to operate your business and grow.

But what are its advantages?

  1. Get immediate cash: The most important benefit of factoring is that it will provide your company with immediate cash. This should help you fix your cash flow and give you resources to pay your expenses and take on new clients.
  2. Provide payment terms to clients: Most large commercial and government clients insist on pay invoices on 30-day to 60-day terms. If you cannot offer such payment terms, your chances of landing these companies as clients are limited. Factoring enables you to offer payment terms to your client because you can finance your invoices shortly after creating them. Therefore, you can offer terms without the negative financial consequences.
  3. It is relatively easy to get: Receivables factoring is easier to get than most solutions. The biggest requirement is that you have invoices for delivered work that are payable by creditworthy customers.
  4. Credit line can increase as you need it: Credit limits are tied to your sales volumes. They can easily increase if your business volumes increase, and your clients remain good. This makes it an ideal solution for companies that are going through an aggressive growth stage and need financing that can keep up with the level of growth.
  5. It can be a continuing solution: Factoring can be used as a permanent solution to address working capital issues. Cash flow or working capital is the greatest thorn a business can experience that in most cases may lead to paralyzing business operations.
  6. Use your invoices as collateral: Most conventional solutions, such as lines of credit and loans, require substantial assets as collateral. These can include various types of assets. Factoring is different. It only requires your invoices (accounts receivables) as collateral.
  7. Does not require you to give up equity: One important advantage of invoice factoring is that it does not require that you give up any equity. Selling equity during financial distress to meet cash flow crunch in your business is common and, in most cases, it may not give you the best price of it.

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