For a small business, factoring used to be among the most attractive alternatives to traditional lending. However, now there is a more efficient way for small and mid-sized businesses to quickly access the working capital necessary for improvements and growth.
Similar to factoring, this form of invoice financing offers an online marketplace where sellers can auction off accounts receivable(s) for faster access to cash rather than waiting for their customers to pay the invoice. This can help businesses dramatically improve cash flow, considering the credit terms extended to most customers are typically 30-90 days.
Why is this market-based solution to receivables finance more advantageous than small business factoring? Simply put, the small and mid-sized business maintains complete control of the receivables auction process whereas factoring gives power to the factor.
It often requires an all-asset lien agreement which means all of the accounts receivable must be made available to the third party factor and allows your customers to be notified that the receivables have been sold. It also allows the factor to set the price -how much you will receive as an advance amount and how much of a fee they will charge you - for purchase of the invoices.
Unlike most small business factoring relationships, the online receivables auction marketplace maintains the privacy of the seller. By selling accounts receivable through an auction marketplace, the seller retains control setting the auction parameters and pricing. To add to the flexibility, the seller also gets to choose which invoices to sell, how many to sell and when he wants to list the invoices for auction.
Although any outstanding commercial invoices can be sold, Sellers often find that by selling often and building a solid history and/or selling invoices from investment-grade account debtors with good credit ratings often get the best cost of capital.
Understandably good credit risks and solid transaction history tend to expedite the auctions because they are an attractive acquisition for buyers (accredited institutional investors). The receivables seller can expect the advance amount to be funded in as little as 24 hours after the auction closes.
While small business factoring often requires an all-asset lien, using the online auction marketplace gives small and mid-sized businesses control over their cash flow and significantly reduces the number of Days Sales Outstanding which provides them the freedom for growth.
Flexibility and multiple sources of capital have proved to be essential to small to mid-sized company success, especially in today's economy. The old days of reliance on one source of funding are over. This innovative online receivables marketplace can provide both flexibility and diversification of funding sources.
The financial flexibility allows the seller to maintain control of the transaction. Small and mid-sized businesses are the backbone of the U.S. economy. It is these businesses that will turn the economy around and drive sustainable U.S. economic growth. By selling receivables on this innovative online auction platform businesses can quickly access working capital and refocus their efforts on day-today operations and growing their business.
Author Resource:
With small business factoring , working capital requirements of small business can be met effectively with the help of invoice financing. Know more about the process at http://www.receivablesxchange.com
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