Credit Card Factoring for Business Working Capital

Filed Under Business Loans

Funding a business and keeping it running can be difficult – cash flow is key. There are always costs to doing business and they must be met. Without a consistent cash flow, most businesses can’t operate. And without a strong, positive cash flow, businesses can’t grow or expand

When cash flow becomes a problem, businesses often look to small business loans to obtain the necessary money to pay bills, make their payrolls, and handle unexpected expenses. But without careful attention to the terms and conditions of these loans, businesses can get into trouble and end up with too much debt to continue to profitably operate. When that happens, companies fail.

Another option businesses can use to fund their day-to-day operations is credit card factoring. Sometimes known as “factoring receivables,” credit card factoring is the sale of invoices or receivables to a financing company in return for an immediate payment. Here’s how it works.

A business sells a specific set of credit card receivables to a finance company, which in this transaction is then referred to as a “factor.” The factor advances a portion of the total receivables amount to the business (usually somewhere in the 70% to 80% range) and then takes over the responsibility for collecting on the receivables as well. The business benefits by receiving an immediate influx of operating funds and the factor benefits by turning a profit on it’s advance – sometimes in 90 days or less.

You may be wondering why a business would choose this route to create working capital. After all, it seems counter-intuitive to basically give away some of the profit from their work. But there are some circumstances when credit card receivables factoring is beneficial.

For instance, if a business has credit problems and finds it difficult to get a small business loan, factoring can be a viable alternative. Credit card factoring doesn’t rely solely on the credit worthiness of the business. It relies more on the credit worthiness of the invoiced customer. Plus, there’s usually less paperwork and faster turn-around times associated with factoring than business loans.

Also, invoice factoring can transfer collection activity to the credit card factoring company which can free up the business to concentrate on its core activities. Collecting debts is not something most small businesses want to spend time on. Letting the factoring company do it can be a relief and a time-saver.

Lastly, businesses that find themselves with invoices or contracts that won’t come due for 90 days or longer often benefit from factoring. Their daily expenses must be met and they can’t necessarily wait until an invoice is due in order to meet them. Businesses that work in the construction industry or work with government contracts are examples.

One of the fastest and perhaps easiest ways to create working capital is to use credit card factoring. It can be a sounder financial alternative than a loan when the circumstances are right. If your business needs to smooth out its cash flow situation, you should take a closer look at credit card factoring.

   Related Posts:
Where To Best Obtain Merchant Capital For Your Business

  Tags:
credit card factoring, credit card receivables factoring, factoring, invoice factoring

 Comments