Invoice Factoring Can Aid Start Up Businesses in the US

Our U.S. economy relies upon sustainable economic growth for long-term prosperity.

Part of this is the small business community. Recently the U.S. Small Business Association Web site posted a report entitled the Kauffman Firm Survey (KFS), providing insight for better understanding business startups in the U.S. Of the 92 percent of startups surveyed about 7 percent were purchased from existing businesses or franchises and more than half of the businesses were home-based businesses between 2004 and 2006. 40 percent operated their business at rented or leased places, and 5 to 7 percent of them operated at their own purchased spaces.

The startups created an average of five jobs per firm in 2004; this includes not only 4.1 paid employee positions, but also 1.4 entrepreneurial positions. Firms that started their companies in 2004 generated an estimated value of more than $575 million in revenue. By 2006, the total estimated revenue of sample firms had increased by 53 percent to $879 million, while employee payroll grew 56 percent between 2004 and 2006.

It is a good indicator of the future. But given the more recent economic downturn in the U.S., many of these companies are having troubles staying afloat. Getting a loan from a traditional financial institution can be a long, frustrating process.

There is one solution that is available to independent businesses, known as accounts receivable factoring, or invoice factoring, which is the purchase of financial assets, or receivables. Traditional bank loans in involve two parties, while factoring involves three parties, making it much easier. A traditional banks will base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Factoring companies look at the creditworthiness of a client’s customers and pays within as little as 24 hours. Invoice factoring benefits start-up businesses by advancing up to 90 percent against invoices, providing cash that covers business expenses such as supplies or even payroll.

Factors do not expect to buy 100 percent of a company’s receivables, and there are no minimum or maximum sales volume requirements. The factoring process begins with due diligence that typically takes one to two business days, and after this has been completed the client is at liberty to offer invoices to the factor, for purchase. Upon receipt of invoices, this company checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by IFG and the client receives their funding.

The program allows choices of invoices to be factored, enabling customers to retain most of their money, while spending the minimum fees to guarantee adequate cash flow for the business.

About the Author:
Kristin Gabriel handles the marketing for The Interface Financial Group (IFG), North America’s largest alternative funding source for small business invoice factoring. The company provides short-term financial resources including invoice factoring, serving clients in more than 30 industries in the United States, Canada, Australia and New Zealand. IFG offers expertise in factoring, accounting, finance, law, marketing and banking.

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