You may be a growing start-up or a thriving enterprise, but one thing is for certain — cash flow problems can constrain your operations. According to the Federal Reserve, a little more than one third of small businesses used business credit cards in 1998, whereas that rate presently stands at about 64 percent, showing that the use of business credit cards has increased significantly. On the other hand, a less utilized but possibly more efficient means of getting cash, known as accounts receivable factoring, is now gaining recognition worldwide.
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 increase from the 13.2 million offers mailed during the first quarter of last year. At the same time total credit card mail solicitations increased only 29 percent. There is indeed an emphasis on the business industry thus leading small business entrepreneurs to inquire about the poor protection of corporate credit cards. (Reference: Synovate, a business research company.)
Business debt that appears on personal credit cards can adversely impact your credit score. Your debt percentage is an important factor in your FICO score. A company debt on your private credit card can increase the percentage of the debt-to-available credit, which then drops your credit score.
The fact is enterprises need not enter credit debt. All they have to do is begin implementing simple procedures that will help them grow without gathering huge debt. This accounts receivable factoring has helped a alot of business prosper through the years. It is efficient at acquiring funding for small businesses without debt through small enterprise loans. Capital for day to day expenses, payroll, and business expansion is being offered by a factoring company.
Traditional lenders do not really view your existing accounts as receivables, which is in contrast to accounts receivable factoring thus making it an effective small-business tool for financing. 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 ways:
Due Diligence – After being approached by a prospective client, Most factors take on a thorough due diligence plan that typically takes about 24 to 48 hours.
Account Review – after the research, the client can now present their invoices to IFG and IFG gets to decide to buy it or not.
In the end, the terms and conditions of professional credit cards are a step backward for customers finally benefiting from almost all of the CARD Act protections. Signing up for a small-business card returns consumers to the less-protected loans with penalty rates and immediate interest rate raises. Accounts receivable factoring is simple and efficient, and there will be no gathered debt.
Agencies including the National Small Business Association have started lobbied for legislation to include small-business cards in CARD Act protections, but for now small enterprise are stuck. It may be tempting to use personal cards for business for CARD Act protections, but that may not be the finest idea. You cannot use the business expense tax write-off to pay interest payments when using a consumer credit card and separating personal expenses from business expenses can be very complicated.
In less complicated 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. Instead begin applying accounts receivable factoring, for more control over your money and foreseeable future.
