Small and Medium businesses require financial services so as to withstand any downfalls in the economy. With the market change, organizations striving for success are becoming acquainted with financial services. Below are some of the primary critical areas that financial services cover.
Factoring is a transaction in which a business can sell its invoices to a third party commonly referred to as a factor. It can also be called accounts receivable financing, and it enables companies to access the value of outstanding consumer invoices before they are paid. The business sells its accounts receivables to a third party factoring company at a discount. It is mostly used when a company is in need of immediate cash, the factor buys the invoices and later access the value before payment is done. The factor can also manage your credit control, collecting and chasing outstanding invoice amount which could be tedious and time-consuming. Factoring has significant benefits for small and medium businesses. Speed is crucial as all outstanding invoice values in your account are dispatched within twenty-four hours. It is also cost effective as all the collection routines of the actual invoices are undertaken by the factor. Time and control are also kept in check due to the availability of liquid cash on instant and the ability to check one’s funding through online management systems.
The terms and nature of factoring are different and differ among various services providers, and it’s all dependent on the customer’s credit history. Small business and medium businesses using factoring don’t have to wait for a client’s payment and can get the cash immediately allowing the company to operate and grow their business. Accounts receivable funding is not based on the business net worth but rather on the quality of the customer’s credit. The funds given are unrestricted giving the enterprise more flexibility since factoring is not a loan and no debt is assumed. One can get the unlimited amount of financing as it is not categorized as a conventional loan. For small businesses where management and cash flow are problems, accounts receivable funding can be customized and managed so that it can provide the necessary capital when your company needs it. With factoring, cash flow is increased and the money generated can be used to pay for inventory, add new equipment’s and expand business operations. A company can make quicker decisions and develop at a faster pace.
Purchase order financing is a funding option for enterprises that require first money so as to process an order. Unlike factoring that gets business cash from invoices, purchase order financing allows for goods and services to be available to the clients before the generation of an invoice. At times in small and medium businesses, situations occur where there is not enough money to cover the costs of doing businesses. Affording the supplies needed to satisfy a customer’s particular needs can be expensive. Purchase order financing comes in handy; businesses don’t have to turn down the order leading to a tarnished reputation. Not being able to complete jobs can be disadvantageous and could result in the closure of a business.
To avoid this, one company pays the supplier of the other company for goods that have yet to be ordered to fulfill a job. The advance usually paid covers a larger percentage and in some situations, businesses can receive up to a hundred percent financing. The purchasing Order Financing Company collects the invoice from the end customer and after having received a small amount from the invoice, the rest of the money is returned to the company. Alternatively, a line of credit can be opened with the supplier. The line will be backed and opened by them allowing for small and medium businesses with fewer assets to get the supplies needed. A company that uses Purchase Order Financing enjoys benefits such as the simple merits of qualification, financial strength being based on the creditworthiness of the consumer.