Traditionally, most entrepreneurs use business plans to raise funds and kick off their businesses. However, the current economic situation has forced banks to institute budget cuts and credit constraints, meaning entrepreneurs have to think of new ways to raise business funding. Such has been made possible by use of new solutions like factoring invoices once the business has taken off. Other than this strategy, some entrepreneurs have raised funding from family and friends. Let’s face it, raising funds for business certainly isn’t an easy undertaking. It can take longer than an entrepreneur had estimated. Strategies such as bootstrapping, and raising some cash Plus enable entrepreneurs actually raise business funding faster.

Fact is, most venture investors are attracted to businesses that generate impressive revenues without necessarily having borrowed money from investors. Therefore, it pays to prepare yourself for some tough investment decisions, such as ceding some stake of the business to the investor. The trick is, if you can sustain your business for quite some time without investor funding, the business actually gets more value when an investor suffices. But, when your business has already taken off and is doing fine, factoring invoices are a strategy of enabling your enterprise stay afloat from cash flow problems. Factoring invoices allow you to maneuver problems that can arise from your business suffering cash flow challenges.

The trick is, never take funding from an angel investor if you are not sure it will multiply. Like earlier stated investors like businesses that are already up and running, and performing impressively as well. With such, raising funds from them becomes easier and faster. Some pointers about factoring are helpful at this point. To begin with, factoring is not a loan, but rather the buyer of financial assets or receivables. The difference between bank loans and factoring is in the number of parties involved in each transaction. Whereas bank loans involve only two parties, factoring involves three parties. Additionally, whereas banks will determine funding by the credit worthiness of an enterprise, factoring is purely based on the value of the receivables.

They are known as factoring accounts receivables, in which once a debtor has been approved by the factor, invoice factoring will benefit businesses that won’t get paid for one to three months. Factor due diligence takes just one or two days, upon which the factor moves up to 90 per cent against the invoices. In most cases, the turnaround is two days.

Article source: http://www.aerofund.com/blog/index.php/2011/04/entrepreneurs-factoring-tactic-recession/