You may be a growing start-up or a thriving business, but one thing is for certain — cash flow challenges can constrain your functions. According to the Federal Reserve, a little more than one third of small businesses used business credit cards in 1998, whereas that rate currently stands at about 64 percent, showing that the use of enterprise credit cards has increased significantly. Another method of acquiring cash to support your enterprise is through the accounts receivable factoring.
Banks and issuers are strongly marketing credit cards to small businesses having mailed out 46 million professional credit card offers in the first quarter of the year 2010, a 256 percent boost from the 13.2 million offers mailed during the first quarter of last year. Nevertheless, there is only a 29 percent raise in credit card mail marketing. Certainly there is an emphasis on the business sector, and many small-business owners are asking why the corporate credit cards don’t get the same protections as consumer cards. (Reference: Synovate, an enterprise research company.)
Enterprise debt that appears on personal credit cards can negatively affect your credit score. Your debt portion is an important element in your FICO score. If enterprise debt is put on your private card, it increases this debt-to-available-credit percentage, which usually lowers your credit score.
The fact is enterprises need not enter credit debt. All they have to do is start implementing simple methods that will help them grow without accumulating huge debt. This accounts receivable factoring has helped a alot of business prosper through the years. It is an efficient way to secure small enterprise financing without the debt of a small enterprise loan. A factoring company provides working capital for day-to-day expenses, payroll financing, and business growth.
Accounts receivable factoring is a famous and efficient small-business financing tool, while traditional lenders may not be inclined to see your current accounts receivable for what they really are – cash for receivables. There are some accounts receivable factoring companies offering clients a “use it as you need it” funding option called single invoice factoring, whereby every invoice purchase is a separate transaction and does not form part of a portfolio lending approach.
It is a buy-sell deal model. Listed here are the steps:
Suitable Diligence – This is a program conducted by these organizations in order to assess the client, this typically takes around 24 to 48 hours.
Account Review – after the research, the customer can now present their invoices to IFG and IFG gets to decide to buy it or not.
At one point, the terms and conditions attached to professional credit cards are a few steps back for people who finally get to gain from the CARD Act. Signing up for a small-business card returns buyers to the less-protected loans with fee rates and immediate interest rate increases. Accounts receivable factoring is simple and effective, and there will be no accrued debt.
Agencies including the National Small Business Association have started lobbied for laws to include small-business cards in CARD Act protections, but for now small business are trapped. Because of the CARD Act protections, it is truly luring to use a personal credit card for business, but that might not be a very bright idea. You cannot use the business expense tax write-off to pay interest obligations when using a consumer credit card and separating personal expenses from business expenses can be very complicated.
In simpler terms, steer clear of using credit cards or obtaining loans with high interests if you want your enterprise to survive in this present economic climate. For better management of your money and for a brighter future make use of the accounts receivable factoring.
