Getting Cash Through Factoring
What do you do when business is booming, but you don't have enough cash and can't get a loan?
Try factoring. This is a process in which you sell--for cash--your accounts receivable to a third party. The factor pays you about 75 percent of the invoiced amount upfront and delivers the rest--minus his or her fee--when paid by your client. Generally, the factor keeps about 6 percent of the invoice amount.
Since factors are more concerned about your client's ability to pay than yours, you may be able to factor even when you can't qualify for a loan. Small businesses often turn to factoring to fund growth or take advantage of early-payment discounts.
Look for factors in the phone book, or get a recommendation from your banker or financial advisor. Remember, though. that factoring is a short-term solution. Most companies use this method for two years or less as they transition to more traditional types of financing.
Excerpted from Get Smart: 365 Tips to Boost Your Entrepreneurial IQ
Entrepreneur Editors' Picks
-
Formerly Enslaved Black Man Nearest Green Taught Jack Daniel Everything He Knew About Whiskey. Today, the Founder of Uncle Nearest Premium Whiskey Celebrates His Legacy.
-
Leadership Lessons From the Exclusive Creativity School That 'Packs 5 Years Learning Into 5 Days'
-
3 Expert-Backed Strategies for Staying Calm in Times of Confrontation
-
The CEO of Wayfair Has Helped Revolutionize Digital Shopping for 20 Years. Here's How He Handles Rocky Economic Conditions.
-
This Founder Went to Prison When He Was 15 Years Old. That's Where He Came Up With the Idea for a Company Now Backed By John Legend.
-
3 Signs You're Letting Pride Get in the Way of Being Successful
-
Chip and Joanna Gaines and Shonda Rhimes Found Incredible Success By Using This One Entrepreneurial Strategy. Here's How You Can Too.