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06/25/2013

Factoring May Be Answer To Help Even-Out Your Cash Flow

Many businesses that have to pay bills, before customers pay their accounts, use factoring as a way to even-out the company�s cash flow.

Factoring is when a company sells its accounts receivables to a third party (called a factor) at a discount, for an instant cash payment.

This option is useful to some fast-growing companies which outstrip their liens of credit, or new businesses that can�t qualify for traditional financing, or those that want to pay their bills quickly to take advantage of discounts.

However factoring can be expensive. To begin with, you only get 75% to 90% of the value of your receivables. Then there is typically a 2% to 6% discount fee, plus if your receivable takes longer to pay that fee usually increases. Some factors will also tack on other charges, such as audit fees.

While factoring is certainly a possibility for some companies, it�s not the answer for everyone. Factors prefer working with firms that do at least $20,000 in monthly billings. Because a steady cash-flow stream is always desirable, it�s wise to spend some quality time with your trade broker to maximize the opportunities for paying as many of your bills on trade as possible.



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