When a company is growing at a rapid rate, additional working capital is usually needed to pay for materials, labor, and additional overhead. Relying on internally generated funds probably won't suffice, especially if customers are paying on credit. If the average customer pays in 45 days and vendors expect payment in 30 days, a cash shortfall is created. The same is true for production employees who get paid weekly. They certainly would have a problem if they had to wait until customers paid their bills.
Accounts receivable factoring is an ideal way to provide funding for companies on the "fast track". When an invoice is generated, the factoring company will advance between 70% and 85% of the face amount up front. The remainder, called the reserve, is remitted back to the client upon collection less factoring fees. Unlike a bank line of credit, the amount of funding is limited o only by the pool of receivables. The advance enables the company to pay for the labor and might even give them the opportunity to take advantage of purchase discounts on materials.
Need working capital? Click here for a free quote.
Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
417.849.7394
February 6, 2008
How Invoice Factoring can Fuel a Company's Growth
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1 comment:
maintaining sufficient cash flow is getting harder due to to delayed payments by customers, specially in the part of the world we live in. and the small suppliers suffer the most as they have minimal bargaining power against the large customers.
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