Asset based lending: A financial solution for all types of companies

Asset based lending was the only option left for small businesses at the depths of the Great Recession when they could not beg, borrow or steal a business loan. The lenders are still quite popular among small and middle sized businesses. In fact, they have taken a mainstream position and do not seem to fade away in recent past as well. However, the concept of this type of financing has been given a new approach and experts are trying to help people come out of common misconceptions regarding this type of financing.

The first thing that one should take out from his mind is that asset based lending option is only for those who could not qualify for a traditional bank loan. It is not the last option for desperate business owners to save their businesses. It is a flexible and cost effective financial tool that has helped businesses in recent past come out of their financial crisis and help their businesses grow. This is one of the reasons why people have developed the misconception and think that considering this financing tool should be opted for only when there is no other alternative for funding their businesses left.

A company is always in need of the cash flow that helps it manage the receivables and inventory aggressively and fill new orders. Getting a traditional business loan has become all the more difficult nowadays. So, companies take into account the factoring companies and get the working capital they need for the swift running of their businesses. Small business owners rely on funders to get along with their business orders and cover the credit gap as well. Asset based lending helps small business run their operations, reduces the risks and improves their cash flow as well.

Sometimes the high rate of interest also helps businesses get huge profit because they are able to fulfill the requirements of their different clients and the credit part also gets covered through this type of financing. With an uninterrupted cash flow that leads to constant production, leads to profit in the long run and saves the reputation of the company as well.

Above all, factoring companies have been in business since long and it is not a new concept that came into limelight during the period of recession. The best thing is that any company that is finding it difficult to manage the cash flow can get benefited from this type of funding. It is a solution for all types of companies.

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Factoring Companies- An ideal option to seek capital on your receivables

Many companies are faced with the problem of cash flows in their day to day business process.  It is very essential that, before you consider financing your account receivables, you need to get to know all about Accounts Receivable Financing, (ARF) also known as Factoring. The basic principle behind the AR financing is that, you are extended a loan amount at a premium from an accounts receivable lender (otherwise known as the factor) holding your AR as the collateral.

This kind of financing facilitates organizations to access the needed money well in advance of realizing the payment on receivables. Once the company has got the capital from the financing institution, the risk involved in the receivables is now transferred to the financing institution and the capital receiving company is charged a premium. Business firms showing good collection rates, more accounts receivable, and credit history will be extended AR financing with attractive terms. On the other hand, if the company is poor performing and complicated AR, such company will not be able to get Accounts Receivable Financing with flexible terms.

It is a common practice that many of the factoring companies will hold back and will offer only   15-25% of your ARs as a precaution to lessen the risk of collection. The factor company will keep this, until the complete AR's factored are realized.  But for many firms this 15-25% ARs decides the profit of the company.  As a result, you will be compelled to factor your entire ARs to get the required financial cushion to run the business and this process continues as a vicious circle.

Before approaching factoring companies, you need to decide which one of the following conditions is apt for you:

•My company is running in a profitable and stable manner. I am considering using the money received through my ARs for the planned growth of my company.

•My firm is seeing profit only recently. I am in need of quick capital because my company is seeing temporary setback in business. This immediate dose of capital will permit me to enhance my profit.

•My company is in bad shape and its future is not certain. I am seeking capital for meeting various needs like employee salary, buying raw material, marketing expenses etc.

If your company is not falling under the first group, then factoring may be a risky proposition, if not highly risky, for your firm. Prior to approaching a factor, you need to interact with the present customers and try to extend discounts for early payment for your receivables. If your condition fits category 3 above, it may also be a high time for you to think of a merger.  It is better to own a small share of a bigger and profitable organization is ideal option than to own the entire lot of a loss incurring company. 

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Factoring Companies Will Give the Necessary Help of Finance

The factoring companies will encourage the invoices for providing money to the companies who are in need of money. The factoring companies will give the maximum help even if the credit record is low. They will help the companies to collect the money from the necessary invoices. The company financing is used for giving finance for the factoring businesses return. The business will grow fast with the help of the factoring companies as the company will get the money faster. The payment history will be seen by them to know more about the company. The bigger companies will keep the clients to wait for more time and now this waiting will be reduced to a larger extent.

Now the customers will get more chance to work with the companies. The companies will get their rotating capital sooner. For funding and financing here are a lot of problems. To reduce such problems factoring companies will come in between and finance the clients and the companies. Due to the financial crisis the problems of the company will increase. To reduce the burden of finance the factoring companies will help by taking the invoices. If the company is new and weak in finance then the factoring companies will be very better.

The newly open company will be helped in all the ways by the factoring companies. They will give the business loan also for the company to proceed in the financial crisis time. The development and success will become faster with the financial support provided. The credit analysis is also given. The invoices are collected and the account information necessary for the invoices. There are factoring resource centers which will help to give more information about the accounting and the services of the factoring services. The cash flow will be smooth with the help of the factoring companies.

The pay roll and other commitments will be solved amiably with the association of the factoring companies. Without troubling anyone the factoring companies will help the company to give out the commitments. There is no wait for the cash from the customers or the business associates. The credit rating oaf he company will boost as the taxes and the pay rolls will be paid in time with the help of the factoring companies. The company can give back the cash so that the business will progress further. If the company does not pay the bills in time it may loose many other opportunities. 

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Factoring Company and Account Receivables Factoring

Factoring companies are best in the field of business as due to them there will be no loss. Factoring Company is financial organization which is used to finance the receivables of the business which is sold to the customers but the payment of those goods is not received. On one hand business will be secure as their invoices are sold and secondly they are receiving the money fast for further development. Factoring Company does not follow the customers who have purchase the goods but have the full control on the accounts receivables of those customers who have not paid the amount. In this case this company buys the receivables from the business owners and then they notified the customers to pay their balance amount.

The benefits of factoring company includes:-

• Immediate receiving of your cash
• Payment of invoice in shorter duration less than 6 months
• Low fee facility
• Stress reduction regarding receivables
• Relates to no credit history
• Facility of new business establishment

Account receivables Factoring is such types of companies which can sell your invoices into cash which will help the business to grow as they are in need of working capital. The services which are provided by this company are unique and different in nature. By hiring this company business can easily sell off your credit in order to need immediate fund.

The main benefits of Account receivables Factoring includes:-

• Business can get cash easily without any debt
• Free from credit limit
• It is for short duration
• Usage of fund in any field
• Low fee facility
• Availability of immediate fund
• Availability of choosing

These both terms are different but they sound similar with each other in the above factoring companies are hired by the business people to whom they sell the receivables and from customers theses factoring companies will receive the balance payment on the other hand Account receivables factoring are  work for business to give them cash easily for new business establishment. Both things are the same one is for customer’s sake and other one is business.

As we have seen the advantages there are some of the disadvantages of these types of factoring companies which includes the following:-

• Payment made but has no records of it.
• Poor rating credit limit
• Low operational cost
• Can get more amount by selling your receivables
• Should be for long duration
• Increase the credit limit

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