Starting a Business

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?
1 min read
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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.

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