Do you find that occasionally your business is short on cash? Your sales are good and your balance sheet is healthy, but you can't turn your receivables into cash quite fast enough to meet all of your obligations. If this sounds like you and your cash needs are short term, it may be time to turn to a factoring broker in Kennesaw, GA, for help. What Is Factoring? Factoring is the sale of accounts receivable at a discount price in order to raise short-term cash. Factoring is not a loan and will not affect your company's credit or the liabilities on your balance sheet. The process of factoring is simple. A factoring broker will purchase your open invoices at a discount rate. The rate varies by industry and will often take into account the credit rating of your customers and the age of the receivables. Your credit rating has no impact on the discount rate. If the discount rate is 80%, the factoring broker will pay you cash for 80% of the value of the open receivables you would like to factor. Once the receivables are sold to a broker, you have your cash and your customers will make their payments directly to the factoring broker. Does Factoring Have Any Drawbacks? While factoring is a quick and easy solution to short-term cash needs, there are a few potential drawbacks requiring caution. First, factoring should be used sparingly. Yes, it is an easy way to get necessary cash, but it is an expensive way to get cash. Interest rates on business loans are much less than factoring rates, so if your need for capital is ongoing, a loan is a much better option. Second, factoring has a bit of a stigma attached to it. You need to prepare yourself for questions about the health of your business once the word gets out that you are factoring. Third, once you sell a receivable to a factoring broker, that broker has the right to contact your customer about that receivable and you risk alienating that customer and losing future business from them. And fourth, factoring often involves hidden costs, such as interest charges or penalties for late collections. Do careful homework before signing any factoring agreement. Factoring is an effective way to cover short-term cash needs. Contact a factoring broker in Kennesaw, GA, with your questions today to find out of factoring is right for your business.
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