SignaPay’s merchant advances can help firms prevent a cash crunch

December 4th, 2013
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Process involves selling business’s future credit card transactions to a processor for fast payment.

Businesses often need more cash than they have on hand. It may be for an emergency, a fleeting opportunity or, sometimes, such ordinary events as a payroll to meet.

How to be prepared and avoid a cash-flow squeeze? Many firms are using factoring, and it’s based on a simple idea. A business sells its future credit card transactions to a processor that specializes in collecting their payments. That processor, using a factor, advances most of the average monthly credit card volume — 100 to 125 percent is common — to the business after verifying the business history provided. As credit card transactions are processed, the processor remits the balance to the client minus a transaction, or factoring, fee.

The process can be swift. Once the business history is verified, money can be in the hands of the business within 24 to 48 hours.

Some businesses use factoring when the bank won’t help. Because it is the credit card processing history of the business that most concerns a factor, firms with scant history, credit problems, or other issues that would deter a bank are no problem for a factor. “We weren’t profitable, so we didn’t qualify for bank financing,” founder Alton Johnson of Bossa Nova Beverage Group says of the juice maker’s early days.

While Mr. Johnson says venture capital was a possibility, he decided that paying a factor’s higher interest rate was preferable to selling part of the company. Among factoring’s drawbacks is its cost. A factor may charge several percentage points more than a conventional lender.

“We know we’re not the cheapest form of financing,” says Jeff Brown, President of SignaPay. And for some clients, he adds, “we’re a temporary fix, not a long-term solution, and you don’t have to worry about losing your business if you miss a payment.” But he and other factors can rattle off lists of clients who have been with them for years — some because they consider banks to be, in Mr. Brown’s word, “intrusive”.

Facts about Factoring:
Factoring isn’t for every business, but it can be a lifesaver in a cash crunch.

Pros
1. Get money fast
2. Can be easier to get than a bank loan
3. No collateral or personal guarantee required
4. No fixed monthly payment

Cons
1. Higher payback percentage
2. Appearances vs. a traditional bank loan

Call 1-800-944-1399 or email sales@signapay.com if you are interested in learning more about our cash advances programs.

 

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