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Factoring Aids Small Businesses with Health Care Costs

By Kristin Gabriel

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Published: 30Jul2009
Word count: 410
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Accounts receivable factoring for small business can convert payments on terms to cash on delivery, aiding small businesses in their effort to pay for health care costs for employees.

New research has been released revealing that 17 percent of small businesses currently do not offer health coverage due to the red tape and high costs. Successful health reform could yield some serious benefits for small businesses in the United States. The research also revealed that 78% of those small businesses who do not offer health coverage would like to offer it to employees. Source: U.S. Public Interest Group (USPIRG).

Here's how accounts receivable financing could assist small business owners with being able to afford health care coverage for their employees.

Small business owners typically have accounts receivables ranging from 30 to 60 to 90 days out. So, rather than waiting for these accounts to be paid, small businesses can convert payments on terms to cash on delivery faster, and then they can apply these funds to health care costs.

The research also revealed that small business owners who do make the sacrifices necessary to provide health care think that it is a smart business strategy to increase employee productivity.

Accounts receivable fnancing benefits businesses that do not get paid for 30 to 60 or 90 days by advancing up to 90 percent against invoices. The factoring company will look at the creditworthiness of the client's customers. Funding can often be provcided in 24 hours, and a commission fee is involved.

Today, single invice factoring, also known as spot factoring, has become popular, as factors do not expect to buy 100 percent of a company's receivables.

Invoice factoring has become a highly effective cash management tool today, especially in light of the recent economic downturn. It is most often small businesses that experience cash flow problems during a recession, and many employers find it difficult to meet payroll, buy supplies, let alone pay benefits and Workers Compensation. Factoring allows businesses to obtain funds based on the money they know will be coming in.

Factoring is not the same as a traditional bank loan. Rather it is the purchase of financial assets, or accounts receivables. Bank loans involve two parties, while factoring involves three. Banks base their decisions on a company's creditworthiness, whereas factoring is based on the value of the company's receivables.

Most factors' professional rates are competitive because each client's circumstances vary, which may have an impact on the fees.

Accounts receivable factoring has been around for more than 4,000 years.

Kristin Gabriel is a writer who works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial resources includinginvoice factoring, serving clients in more than 30 industries in the United States, Canada, Australia and New Zealand. IFG offers expertise in factoring, accounting, finance, law, marketing and banking.

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