When you factor receivables through a receivables factoring company you are selling your invoice(s) to that factoring company. The factoring company pays you the $ amount of the invoice less a small discount fee (usually a percentage of the invoice).
Through many receivables factoring companies you can have funds in one to two days, and then they collect payment from your customer when the invoice they bought from you comes due.
It's a tantalizing thought, being able to collect on your invoices in two days time... Imagine the strides you could make with your company if your receivables were available to you within two days after you submit your invoice(s)!
How can Receivables Factoring help you?
Consider XYZ sub contractor, who has completed a job for ABC general contractor and has submitted his invoice for $1,000.00 to the GC.
Normally XYZ would have to wait at least 30 days to get his hands on that payment. For smaller shops this wait can be excrutiatingly painful and it has been the demise of more than one shop.
Fortunately though, XYZ subcontractor now has two choices. He can:
Now if XYZ doesn't need the money right now then he doesn't have anything to worry about. But if XYZ is a small shop with limited funds then receivables factoring may be exactly what he needs!
With receivables factoring, XYZ Subcontractor (and YOU) can have:
All kidding aside, this is definitely a viable way to keep your business afloat during tight times and/or to grow your business when those opportune, yet often fleeting, moments present themselves.
How does receivables factoring work?
What should a sub-contractor who is looking for cash with a short turnaround time do? First, he should contact several different receivables factoring companies. They may ask a few standard questions, like whether you, the sub-contractor has a bank line, whether you have any federal, state, or local tax liens, and whether the general contractor for whom you are working is bonded.
You can ask the factor for details such as
points, the percentage you would be charged to factor, and how
soon you might be able to receive funds.
The fee to factor that $100,000 invoice for one month could be say $3,000. He would receive the balance of the money, equal to $30,000 minus the $3,000 fee, or $27,000, upon receipt of the funds due toward payment of the invoice.
Please note that these figures are strictly hypothetical. Whoever you choose to factor your receivables can give you the exact numbers.
There are no minimum quotas to fill when factoring your receivables
You don't have to factor all of your invoices, you can pick and choose and do it as often or as seldom as you wish. Some contractors do it on a weekly basis, some on a monthly basis, and yet others do it only occasionally.
You usually don't have to commit to any type of schedule, there usually are no minimum requirements to fill, and usually you are the one to decide when and how often you "sell" your invoices. Ask these questions of the companies that you are considering using to get a better feel for how they operate.
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MONK AND DBUG, LLC
DIANE DENNIS ENTERPRISES
555 NW FAIRHAVEN DRIVE
OAK HARBOR WA 98277