Factoring has been practiced for centuries. The Romans sold
promissory notes at a discount as did the Phoenicians. The word
"factor" comes from Latin, the language of Rome. It means "to
do" or "to make." The Pilgrim's journeys to America were
financed by advances from a Factor who provided the funds to pay
for the journey. The Pilgrims repaid the money with earnings
from America. Factoring to this day is an extremely common
business practice in Europe whereas many American business men
have never heard of it.
Factoring is the selling of your accounts receivable for cash
versus waiting 30-60 or 90 days to be paid by your customer.
When you provide a Factoring company with copies of your
invoices, the Factoring Company uses your invoices to make a
loan to your company. It is a simple process and can be
automated after the first transaction. Credit is not an issue
when providing Accounts Receivable Loans or Financing. The
Financial Companies looks at the credit history of the vendor
not yours! This is exceptional good for small to medium size
business that have been in business for less then two years.
My first experience with Factoring came when one of my Tax
clients ending up with a sizable Tax liability one year. He ran
a small Trucking company and had very few tax problems in the
pass. However, because of a sudden burst in growth he was doing
2 to 3 times more business in the last half of the year. Because
he did not have sufficient tax write offs, his tax liability
really hit hard. He was actually having serious cash flow
problems because of unplanned growth!
We talked about the situation, his taxes were completed and
because he had rented a couple of trucks to keep up with the
work load, we were able to use the rental cost as a write off.
But there was still the self-employment tax and there was no
doubt he had an increase in business income.
I didn't say anything, but I was concerned about his payment for
the Tax preparation. I knew he was having cash flow problems and
the tax bill did not help. Then he told me about the $30,000
worth of Invoices. Because the invoices had not been paid they
were not included in his income for that year so I had no idea
that he had invoices in that amount. In fact the invoices where
scattered over his desk.
I went on the Internet and started to research "invoices". I had
never really understood Factoring before that time, but I had
heard of it. We did not have to Factor my client's Invoices
because he called the company he worked with, explained the
situation and they paid him 50% of the Invoice immediately and
the balance shortly after.
I had already researched "Factoring" or Accounts Receivable
Financing and being a Tax person I was always looking for ways
to help my clients pay their taxes as soon as possible,
especially if they owed employee taxes.
I put an ad online and within days a CPA called. He had a client
who imported culinary products from overseas. They needed to
factor a fairly large invoice. I called one of the Factoring
Companies explained the situation. The Factoring Company
arranged for his company to do a Purchase Order from his
supplier overseas. Once the Purchase Order was in place, we
factored the Invoice. The client received over 90% of the
Invoice amount within days. He then went on to repeat the deal 3
or 4 more times!
Purchase Order Funding is slightly harder to get then Accounts
Receivable Financing, however, Purchase Order Funding is very
helpful for Business who makes large purchases and resells to a
third party.
About the author:
Cassandra Ingraham operates an Online Tax Resolution and
Bookkeeping Service. The small Tax Service specializes in
Invoice Lines of Credit up to $10 Million per Invoice.
Government, City, State and Corporate Invoices welcomed. More
information at:
http://www.taxeswilltravel.com
