In the majority of cases businesses can only run when they have a steady flow of income or a foundation of money with which to invest into various parts of the business--supplies, operations, and so on. Phoenix small business investing experts state that obtaining a loan is one of the most common ways to get the money one needs to start a business. However, for many individuals getting a loan from a bank or even from a second tier lender is incredibly hard, whether it be because of bad credit, lack of credit, or otherwise.

There are a number of things that individuals can do if they cannot obtain small business loans in Arizona, or in any city across the nation. They can take the time to establish business credit, borrow money from family, and so on. They can also do something called factoring or accounts receivable financing. Phoenix small business investing officials suggest factoring to companies that are either growing at a rapid rate or to companies that do not have any established business credit.

Factoring is a method of obtaining cash by selling a company's accounts receivable invoices to a third party. The third party is technically called a "factor" and it is simply a certain type of financial institution that buys company invoices (or receivables) at a discount from the company, according to Phoenix small business investing experts. Factoring is a great way to finance a business because it is a way to obtain cash without focusing primarily on a business' credit history and so on.

Phoenix small business investing authorities also state that factoring is a great way to keep a company running with constant cash flow while it is waiting on a loan or another more traditional source of funds. In the majority of cases, when the factor buys the receivables they take on all of the risks as well as all of the reward associated with the invoice, which means that whether the debtor (whose invoice the factor paid you for) pays or doesn't pay it is not going to affect the company that sold the debtor's receivables.

Phoenix small business investing experts say there are a couple of things you should know before you try factoring. First, it is important to thoroughly discuss your finance options with your accountant to determine if it is a good financial move for your company. It is important to know that the factor will often charge some type of service fee. In addition to this, they may charge you interest. The interest is usually based on the length of time they have to wait before receiving a payment from the debtors whose receivables they bought from you. Additionally, the factor will consider the fact that they may not receive any money from the debtors whose invoices they buy, and this is "factored in" when they determine how much they want to a company for an invoice.

Factoring may cost more than being able to get a loan and pay it off. However, if getting a loan or some type of equity is not possible, factoring is an easy solution that makes funds available quickly. Invoices may be sold for less than they are actually worth, but the money received from factors can provide just the right amount of funds to keep a business up and running.