Financial services are a form of economic services provided to individuals and businesses by the finance industry. Some of this services include loans, financial advice, insurance savings and investments. This services can be accessed from banks, credit unions, insurance companies, factoring companies, stock brokers and investment firms. As a small or medium size business, you may at times find it hard to access some of this financial services. It is therefore important that you learn what financial services are readily available for you and why they suit you better in comparison to others.
Factoring is also known as accounts receivables financing. This financial service involves the sale of a company’s accounts receivables rather than just collateralize them for a loan. The accounts receivables are sold to another company or individual at a discount. It allows you to transfer a credit risk to the willing buyer. This way, even if the debtors do not pay, you still retain the money.
Factoring is beneficial to small and medium size companies as it gives them a fast and easy access to finances. Also, it is a way for the business to avoid debts and loans and still finance its operations.
Purchase order financing
Purchase order financing is a form of financial service that involves lending based on a specific customer’s order. This way the business accesses finances to process an order and can repay once the customer makes payment. Purchase order financing is easily accessible to both small and medium size businesses. Businesses find this form of financing very beneficial especially if they have multiple orders but are experiencing cash flow problems.
Purchase order financing enables your business to retain its reputation as you do not have to turn down orders. Also, it enhances your chances of increasing the company’s revenue. Additionally, this form of financial services helps in business growth, particularly, because it has no ceiling.
Asset-based lending is almost similar to bank loans. The only difference is that the qualifying factor for this king of financial service is the percentage of your assets’ value. It involves securing the company’s accounts receivables, inventories and other assets so as to obtain financing. This means that the extent to which your cash flow problems are solved is determinant on the future income. Asset-based lending comes with the benefit of quick financing. Also, with this kind of financing, you are assured of credit protection for your debtors in case of insolvency.
The stated financial services are some of the sources of financing that small and medium size businesses should consider. However they should not only be limited to the three. There are options available and may be suitable for you depending on the industry and your current company needs. Before settling for any financial service, first determine your eligibility for the service. It is also advisable that you first evaluate its benefits and costs. If the benefits are high, then that might be the financial service for you.