Making Sense of Small Business Factoring

Written by moxysupport on June 6, 2015

At US Funding, we know that owning a successful small business is tough with challenges that go from personnel to production. We also know that financial challenges are the ones that stay on your mind and present the greatest risk. Perhaps factoring, or accounts receivable financing, could be a perfect solution. Here is an overview of financial facts that will help you determine whether small business factoring is right for you.

Small Business Financial Statements

Income Statement. Also called a profit and loss (P&L) statement, this is an overview of how your small business is doing over time, like quarterly or annually. It is a broad view of how much money you have to cover debt, pay salaries and expand production. Investors will refer to the Income Statement to help determine the risk of extending long-term credit.

Balance Sheet. This document gives a peek at your finances at any given moment, usually during a month or a quarter. Lenders use it to get an idea of your company’s fiscal health and your ability to fund your small business without needing additional financing, such as factoring. It will include:

  • Assets – What do you possess?
  • Liabilities – What do you owe?
  • Equity – What is left over for you?

It shows the net value of your small business, your debt, how you’ve managed your assets, and changes in equity.

Cash Flow Statement. An indicator of whether you have enough money coming in to meet your obligations. Your small business can be profitable, but still have cash flow problems. Maybe you have plenty of sales, but are plagued by delinquent accounts. Perhaps production has been good, but new equipment would grow profits even more. A cash flow statement will help you understand what you need in the short term and if factoring could help. It can be a simple spreadsheet, but should be updated daily, weekly or monthly. You will rely on a proven formula:

Operational Costs (income and losses minus expenses)

+ Asset Investments (purchases and sales of investments like property, equipment, etc.)

+ Financing (business loans, lines of credit, stock sales, etc.)

= Cash Flow

This tells you whether factoring could provide money to cover large and small expenses and pay your bills, or help with seasonal fluctuations, or buy equipment to support sales.

The Benefits of Small Business Factoring

Basically, factoring is when your small business sells outstanding invoices (accounts receivable) to us, we provide you with a lump sum of needed cash, and we collect the payments owed.

  • The money factoring provides is what is due you, so you don’t repay a loan or add to your debt.
  • Factoring provides a lump sum within 24 hours without the legal forms or background checks.
  • Factoring doesn’t require audits, financial reports, net worth statements or other proofs of financial stability.
  • You choose which accounts receivable make the most sense to be factored; you don’t have to include all of your invoices.
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