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When times get tough like they are now, businesses small and large run into cash flow problems. To make ends meet, most look to the financing of invoices for needed cash flow relief. If you are thinking along these lines, there is a key issue to consider.

Selling one’s invoices, known as “factoring”, is a process that has been around for a very long time. For as far back as money has existed, one party has offered to pay another an advance on monies due from yet another party. On a personal level, these are often known as payroll advances.

The decision to finance business invoices is a more complicated one. The primary issue is the cost involved. Some businesses run large profit margins and some do not. For those that have health profit margins, factoring almost always makes sense when it comes to resolving cash flow issues. For those with smaller profit margins, it is a more difficult issue to figure out.

As with any form of financing, factoring costs money. The fee is highly negotiable, but there is always going to be a fee. The thing that causes many businesses difficulty is trying to figure out that fee. In most factoring cases, the fee is determined on a sliding scale using time as the key variable. Let’s take a closer look.

Most invoices are due payable net 30. This means your client has 30 days to pay. When a factoring company buys the invoice, they will quote you a fee for that period of time. What happens, however, if the client takes longer to pay the invoice? The factoring company will charge a larger percentage of the invoice the longer it takes to get payment. The fee might go up slightly each day or every few days. The exact process is different with every company.

Now, assume you are quoted a fee of 3 percent if the invoice is paid on time and the fee goes up 1 percent for every 5 days payment is late. After 60 days, you are looking at a 9 percent fee! This can be a problem if your profit margin is only 8 percent because you will be losing money on the deal. In some situations, losing money on factoring is not a huge issue because it is more important to have cash on hand. This is often the case when the economy is in bad shape, but it is not a situation you want to continually experience.

Selling your invoices for cash flow relief is a fairly straightforward process. Just make sure to crunch the numbers so that you don’t run into a situation where you are continually losing money on the transactions.

Stephen Teak is with http://www.FactoringCompanyInformation.com – providing accounts receivable factoring for businesses large and small. Get cash for your business fast.