contractor success When Competing For Contracts, Capital Makes A Difference One strategy to help companies make payroll, reduce operating costs and build growth. By: Tracy Groves W The ‘How-to’ Of Factoring Invoice factoring is a straightforward op-tion that provides consistent cash flow. It is a financial transaction where a busi-ness sells its accounts receivables (or invoic-es) at a discount to a factoring company (or By understanding the basics of factoring, contract businesses have access to a practical alternative to a bank-issued credit line. 38 CM/Cleaning & Maintenance Management ® May 2014 Image courtesy of Creatas/Thinkstock Winning commercial service contracts can be a challenge — whether you’re a young start-up taking steps to establish a com-mercial reputation and client base or an established cleaning contractor seeking expansion. Servicing commercial accounts requires not only a competitive bid but also the working capital to maintain staff, supplies, equipment and operating expenses. With extended payment terms common to commercial businesses, contractors often face their biggest challenge in meeting ex-penses while waiting out terms. Many people think there are only a few standard options when it comes to business finance — choices like bank loans or credit cards, which can be time consuming, incur debt and be tough to come by if your business is less than three years old. Alternatively, there is a valuable but less familiar form of financing called invoice fac-toring, also known as accounts receivable financing. While factoring is a strategy that enables required cash flow, it is often overlooked or not fully understood as a means of fi-nancing. By understanding the basics of factoring, contract businesses have access to a practi-cal alternative to a bank-issued credit line, offering a fast, flexible resource that can re-duce overall costs without incurring debt to the business. factor), enabling the business to gain im-mediate access to its cash. The factoring process starts with the seller generating an invoice for work completed. Rather than mailing it to their customer, they agree to work with a factor and sell the invoice to them. The factor issues a notification to the debt-or (the end customer being invoiced) that payment should be issued to them instead of the seller, which results in a simple change in the “remit to” address for payment. The factor in turn provides immediate funds to the seller in the form of a cash ad-vance — typically a high percentage of the face amount of the invoice. When the debtor actually pays for the services invoiced, the factor pays the seller the remaining balance (the reserve) minus its discount fee for handing the transaction.
CMM – Archives May 2014: 38
