Factoring Versus PO Funding – Is a Cash Advance Better Than Cash in Advance?
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The obvious place to go is to your banker. They offer lines of credit or commercial business loans. Typically there is a requirement that the company is in business for at least three years. The business owner needs to have good credit. And the business owner usually has to pledge personal assets, such as a home, as collateral. Newer businesses cannot meet the three year rule. The worldwide recession coupled with tightening money supplies makes it more difficult for the more established businesses to qualify.
Invoice Financing / Factoring
There are ways businesses can get financing without getting a loan. But there is a financial cost to this kind of financing. Factoring or accounts receivable invoice financing is one option that many businesses are either not aware of or fail to consider. The good news about the current economic slump is that it is forcing businesses to explore all their options.
If a business has creditworthy customers, invoices those customers and waits for them to pay, then factoring may work for them. Other alternatives are a line of credit with a bank or a traditional business loan. But with today’s tight money supply, many businesses cannot qualify.
The reason alternative financiers can provide funding when the banks cannot, is a difference in qualification criteria. These funding sources provide cash advances against your accounts receivable invoices in 48 hours. Then the funding source gets paid by your customers. So, their primary qualification criterion is the creditworthiness of your customers.
With a cash advance you don’t have to worry about writing a monthly loan payment. You get a large percentage of your accounts receivable money deposited into your bank account in as little as one day. Then after the funding source receives payments from your customer, you get your second cash infusion. You get the remainder of your accounts receivable money less the factoring discount fee.
Purchase Order or Contract Funding
There is a variation of the factoring theme that somewhat fulfills the entrepreneur’s dream of true start up money up front. With factoring, we provide cash advances against invoices for completed work. With purchase order or Contract financing, cash is provide before the work is done. Businesses supplying products can qualify for this financing. Service companies cannot. The reason this funding works for companies supplying products is that we pay your vendors. It is most often used in drop ship situations where your supplier delivers directly to your customer.
A grant would provide "cash in advance". And a grant is free money. But the problem with grants is that most for-profit companies do not qualify. Like grants, PO financing also provides "cash in advance". But unlike grants, there is a cost. When your business gets PO/contract financing, you will also be required to factor your customer invoices when they are generated. So you are hit with two sets of fees. For both factoring and PO funding, we suggest that your business should have a gross margin of at least 20% and a profit margin of at least 10%.
Based on the time value of money, the sooner you can get the cash the better. So if the timing is critical, the "cash in advance" PO funding option could work for your business. But, you pay for that privilege. Most B2B or business-to-business companies can qualify for factoring. A factoring cash advance may give your business the working capital and cash flow it needs. It’ worth a look.
Turn your accounts receivable into immediate CASH! Although we do not provide loans, we do provide cash flow solutions to businesses that may not qualify for traditional business loans from a bank. Offers factoring / accounts receivable financing, equipment leasing, software leasing, cash advances on future credit card sales and pre-settlement lawsuit and law firm funding.
I invite you to claim your free access to “The Truth About Making Money with Teleseminars” by clicking get the Make Money with Teleseminars report Sandra Noble, CEO of Noble & Associates Consulting, Inc, provides marketing, internet marketing, business analysis, process improvement and IV&V. We also sell gas and grocery gift card coupons for business advertising and promotions.
Article Source: ArticleSpan
