Sujain Thomas, Negosentro | Although maintaining steady cash flow is a big challenge for any business, there are various financial tools available to minimize the impact of cash flow constraints. Loans and bill discounting are the most common methods of pumping in quick cash that helps to fight the ebb in cash flow. Since different kinds of industries have different methods of cash realization, the same method may not work well for all kinds of industry segments.
To avail the facility of bill discounting, you must have a bill of sale or invoice against which you can receive some advance payment from a third party without having to wait till completion of the credit period to receive the payment. However, this arrangement does not work for professionals like real estate agents who do not sell anything but provide services. For them, there is a special financial arrangement available, that you would understand by reading this article.
Understanding the time lag
Real estate agents receive a commission from the sales only after the deal closes. Since the transaction of real estate is a complex legal and commercial process, it takes time to close deals that could vary from few weeks to few months. A real estate agent may have to wait indefinitely to earn the commission, as there is a considerable gap between the time of striking a deal and closing it. The uncertainty about when commissions reach the agent often creates problems in cash flow, and real estate agents seek some financial assistance that could provide relief.
Paying commissions to agents
Receiving the commission early without waiting for completion of the deal is what any real estate agent would wish. To make this possible, some financial companies have come up with a model financial arrangement known as commission express that allows the agents to get the commissions before closure of the deal. Any licensed residential real estate agent can qualify for this arrangement of short-term commission advances for a maximum amount of $20,000. Any deal in single-family residential property, for both condominiums and townhouses, can qualify for the advance. The financial company that provides the advance accepts even new construction and REO property.
The arrangement is based on the understanding that the agent would pay back the amount taken in advance within 30 days. The finance company usually charges a fee on the transaction and in case the closing period stretches beyond 30 days, the agent has to pay additional fees.
The attraction for real estate agents
The real estate agent can make use of the money to reinforce business processes that help to expand the customer base that helps to stay ahead of the competition. The cash helps to overcome financial uncertainties that are part and parcel of real estate business. By being confident of smooth cash flow, real estate agents can focus on strategies that help to realize long-term business goals.
The arrangement has provided a lot of encouragement to real estate agents who until now did not receive any structured financial assistance for their business.