What Exactly is Credit Card Factoring?

If you own a small business and are currently struggling with insufficient cash flow to cover all your bills and financial obligations, you’re not alone. Many small businesses have a tough time maintaining a healthy cash flow even when their profits are high.

Why is this? One of the most common reasons for inadequate cash flow is late payments on the part of clients. After you’ve provided your services or products, you may invoice your customers to have them pay at a later date. Unfortunately, your own bills might need to be paid before your customers actually pay off their invoices, which can cause trouble for you in the banking department.

Luckily, there are avenues that you can take to help get you out of a jam like this, including credit card factoring.

What is Credit Card Factoring?

Traditional factoring is a type of financing platform that can turn your credit card receivables into the cash you need to pay your bills, vendors, suppliers, lease, and so forth. Also referred to as a “merchant cash advance,” credit card factoring involves selling your business’ credit card invoices to a third party called a “factor” which then collects the payments from your customers.

Typically, factors will advance anywhere from 80% to 90% of the value of your receivables to you upfront. Once the payments are collected from the customers, the remainder of the money (minus the factor’s fees) will be given back to you.

Credit card factoring is a type of cash advance that is secured by your business’ future credit card sales. If you do a lot of business that makes sales with credit cards as payment, credit card factoring may be an ideal choice for you. In this case, a merchant cash advance firm will provide you with the cash up front, then deduct a percentage of your credit card sales every day until the full amount is entirely paid.

This is very advantageous because it is set up in such a way that you will never be in the red. The amount that is deducted from your credit card sales will depend on how much you sold in one day. If you have a slow day, less will be deducted; on the other hand, if you have a profitable day, more will be deducted. The amount taken is relative to your credit card sales.

Another advantage of such a financing program is that you are more likely to be able to get the cash you need much more quickly than a traditional bank loan would be able to give you. When you’re in a bind for money, you need it right away and can’t afford to wait around for the bank to approve your loan and finally give you the money you need. Credit card factoring can get you the fast cash you need to keep business going.

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