The telecommunications industry is among the fastest growing industries all over the world as of this moment. We have relied heavily on technology – the Internet, computers, smartphones and other communication devices that will not work without the advances in technology that we are enjoying now. There are countless telecom companies as well as telecom service providers, both big and small, that offer different products and services to clients.
One of the obstacles telecom service providers face is the stress that their cash flows suffer from. Clients may take from 30 up to 90 days to pay their invoices, and suppliers need the cash to carry on with their business. This is where telecom factoring comes in. There are countless factoring companies to choose from, all of which have websites you can visit now if you are running a telecom company looking for a financing option.
What is Telecom Factoring?
Telecom factoring is one form of financing telecom companies that are having a hard time maintaining a steady flow of cash for their day-to-day operations. Factoring is a better alternative than applying for a bank loan or a line of credit for several reasons. The most important of these reasons is that the credit rating of the telecom company is not a basis for approval. Unlike banks that first look at borrowers’ credit ratings, factoring companies instead look at the company’s clients’ ability to pay their invoices. There are a lot of other notable advantages in telecom factoring compared to other forms of financing, which will be discussed further on.
How Factoring Works
Invoices from telecom companies’ clients are sold to factoring companies and they are given the amount that they need – it can be the whole amount of one or a number of invoices, or just a portion of what the company needs to stay afloat until the next invoice payment. A small fee is added to the invoice amount borrowed by the telecom company, and the balance is paid back by the lender, if there is any.
There are small telecom service providers such as cable providers, disconnect crews and other sales and marketing services whose bigger clients, the major players in the telecoms industry, take a long time to pay their invoices. Invoices from several different suppliers are pooled together over a certain period and only then will the client issue checks for each of the services rendered to them. Invoice payments usually take from 30 days to as long as 90 days. This period of time is detrimental to small telecom suppliers, as they need cash to finance their day-to-day operations.
This is where accounts receivable factoring comes in. Companies offering this type of financing eliminate the burden for telecom companies of ensuring that their business is not halted by lack of funds. Funds can be transferred to their accounts as quickly as 24 hours after applying for factoring.
Factoring vs. Financing
Invoice factoring has several differences compared to bank loans and lines of credit, and some of these are listed below.
- Helps improve your credit rating. Since the money you receive from accounts receivable factoring can be used for different purposes such as paying the accrued debt of your company, it can greatly help in improving your company’s credit standing. Startup telecom companies that do not have a long credit experience can still be eligible for factoring as credit rating is not a determining factor in accounts receivable factoring.
- Quick release of funds. Banks and other financial institutions require a lot of things for a borrower to be approved for a loan, and the processing itself can take weeks, even months for the funds to be released. If your company cannot afford to run out of capital for this period of time, then accounts receivable factoring is your best recourse. With the latter, you only have to wait at best a day or two for the needed funds to be released to your company’s bank account.
- No collateral is required. Banks and other lenders require land and other properties as collateral for their loan offers. With accounts receivable factoring, the invoices of your clients will serve as the “collateral”.
- Flexible amounts to borrow. You have the option to factor only the needed amount that your company needs for your cash flow to stay steady. It can be the whole or partial amount of one or several invoices. Should there be a balance, the factoring company will give it back to you less the factoring fees and the amount factored.
- Flexible payment terms. There are instances when companies get deeper in debt when they apply for a bank loan or a line of credit. This is because the payment terms are fixed, and most, if not all, of them have monthly payment terms. If your business is not doing well in a certain month and you need to pay for the loan, chances are you will accumulate a loss. With accounts receivable factoring, your clients’ invoices will serve as the payment for your borrowed money, and the factoring company will collect it for you.
Where to Use Factored Money
There are many ways you can use the money that you will receive from the factor. You can use it to cover daily operating expenses, overhead expenses, purchase more tools and equipment, pay debts and much more. You are not limited as to where you can use the money, as long as it is paid by your clients’ invoices.
If you are looking for a reliable factoring company, you can start browsing the Internet for their sites and take a look at what they can offer you. Having several options will help you decide on the best one to do business with. You can grow your telecom company with the help of invoice factoring, until such time that you have established a sufficiently steady cash flow that you won’t need accounts receivable factoring in the future again.
Image: freedigitalphotos.net / Stuart Miles