Factoring, or selling Receivables Accounts for up-front cash; finding an "angel investor" (a wealthy investor); obtaining loans or credit from suppliers; seeking loans from venture capital firms that cater to small businesses.
FACTORING
One way to get cash for operating expenses is to sell your Accounts Receivables to companies that will buy your invoices and collect payment from your customers. In return, you pay a finance charge or "discount fee" on the total amount of the receivables--a process called Factoring. Payment (Factoring Loan) from the Factoring Company can be as quick as a few days--as opposed to waiting 30, 60 or 90 days for customer payments.
Factoring good, ready source of cash, but if you rely on it totally, the finance charge could slowly eat into your profits.
Finance charges for Factoring can range from as little as 2.5% to as high as 15%. The amount depends on the total value of the accounts you factor. Factoring companies can be found in the Yellow Pages or on the Internet. The Edwards Directory of American Factors (Edwards Research Group; $199) offers detailed information on 200 Factoring companies nationwide and is updated biannually.
Factoring is a financing option for young, undercapitalized businesses that have the profit margins to absorb the factor's fee. The business may need the money to meet expenses or to go after other projects. Factors buy an invoice based on its creditworthiness; they don't need a small business' financial statements.
Factoring, which used to be the exclusive domain of the garment industry, is expanding into manufacturing, distribution and the service industry.
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