PO Funding Versus Factoring – Which Is Better, Cash Advance Or Cash In Advance?
Start up businesses need start up cash. But the best source of initial working capital is probably friends, family and your own personal financial resources. Using traditional and non-traditional business financing will cost you more. However, business financing is usually need when you’re ready to take your business to the next level.
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.
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’s worth a look.
I’d like to invite you to access to your *FREE* Report,”Factoring: Why Factoring May Be Your Best Financing Options”by visiting www.GetCashFromReceivables.comNoble Finances offers factoring/accounts receivable financing and cash advances on future credit card sales. Turn your accounts receivable into immediate CASH!Call Noble Finances at 404-374-3384 today.
Article Source: ArticleSpan