How Distributors Can Benefit Greatly From Factoring Receivables
 Distributors and distribution companies can benefit greatly from factoring receivables. This method of capital generation allows distributors to be advanced monies for a job they have already completed or which they have agreed to complete. Often times, companies are forced to wait between 30 and 90 days before they are paid for a product or service they have already completed.
While this may be a common way to do business, it doesn't mean that it can't be financially stressful. Distribution companies have obligations that they must meet. They have to pay personnel, purchase materials, supplies and pay rent. All of these things require money and if a company has completed a job but has not yet been paid for it, this can put them in a very precarious position. They may have lots of customers but still be cash poor, have cash flow problems and be unable to pay their bills.
Because companies are often required to essentially finance any business they secure on their own, until they actually get paid for that job, they won’t have any cash available. Many businesses will remedy this by applying for a bank loan. They will use debt to obtain the money they need to either keep their business running or to expand it. Because it is very difficult to take on new jobs or expands one's business without cash, a company may not have many options and are forced to get money wherever they can.
Obtaining a bank loan is the most tried and true method that distributors and distribution companies use to raise capital. However, it can be rife with problems and in some situations, is impossible. A bank will typically not loan money to a company that has not been in business at least three years and is not profitable.
Companies with average to poor credit and today, even those even with fairly good credit may find it extremely difficult to get a loan. This is because, especially today, banks are extremely tight about lending out money. This can be quite stressful for a business in need of immediate cash but which finds itself unable to obtain it through the traditional means.
One option that is quickly becoming more popular as businesses learn more about it, is factoring receivables. This involves a company selling their invoices or receivables to a factoring company. The factor would purchase them at a discounted rate generally between 70% and 90% . This portion of the money is advanced to the company and they will receive the rest of up upon the factor fully collecting on the invoice.
After they have collected the money they will return it to the original owner of the invoice minus a fee. This allows a businesses to get the immediate cash they need to meet their obligations and also to fund new growth without taking on new debt.
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