Your company has grown, and you need money to expand your facility or move altogether. Applying for a standard loan can take weeks to get approval and one is unable to pay for items like payroll. Factoring is an option that you can utilize that will leave you with little debt afterward. Here are a few ways that you can prepare your business for accounts receivable financing.
Find a Partner to Work With
Before you can use your accounts receivable invoices to finance your business expenses, you need to find a lender who specializes in this type of loan. Research providers of this service, then contact them to learn what they would provide to you. They should send the details of their terms to you, such as which invoices they would purchase from you and when they would pay you for them. They should also inform you of the percentage they would give you upfront once the transaction was completed as well as the fee that they will charge. Once you select a factoring organization to partner with, sign the contract and return it to them.
Let Your Clients Know of the Change
Once a deal has been made with you and the lender, they will select the invoices that they wish to purchase. They may run the credit or look at your clients’ payment history to ensure that they will settle their bills on time and will be a reliable asset for the factoring organization. Although the financing company will reach out to your customers, you should inform them of the situation yourself. One advantage for them is that they can use Net 90 terms to buy large ticket items. This can make the process simpler for them as well.
Get Paid for the Invoices That Are Purchased
When you ship an order to your client, you will send the invoice to your lender. Within a few days, you should receive a large portion of what is owed to you. The factoring company will then bill your customer and negotiate the payment. Once everything is settled, the financing organization will send you the rest except for the fee that they are charging you. You can utilize the cash for whatever you need, such as expansion, payroll, supplies, and equipment. You get the money debt-free, which can benefit you in the long run. It can improve your credit rating and eliminate the debt that you have.