What is Accounts Receivable Factoring?
Also known as accounts receivable financing, factoring is a transaction which involves selling receivables to a factoring company. The receivables factoring company pays the business owner (you) up to 97% of the value immediately. Then, the factor is paid by your customer.
Accounts receivable factoring is used to smooth out the gaps in your cash flow caused by slow-payers. It’s a debt-free way to get paid sooner by unlocking the cash tied up in unpaid invoices. Since it’s not a loan, there is nothing to repay.
Rather than waiting 30+ days for payment, factoring accounts receivable helps your business get paid immediately for goods and/or services you’ve already provided.
Accounts Receivable Factoring Secures the Funding You Need
It’s no secret that slow-paying customers can strain your cash flow. Any small business owner knows that waiting for customers to pay invoices while trying to cover expenses and payroll is frustrating. It’s even worse if outstanding receivables are holding your business back from taking on new opportunities.
Accounts receivable factoring is a simple way to get paid faster – typically within 24 hours – for outstanding receivables.
Factor Finders specializes in flexible accounts receivable factoring solutions for both start-ups and long-established companies. Businesses in almost every industry can turn their receivables into fast funding with AR factoring.
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The Receivables Factoring Process
- Every accounts receivable factoring transaction begins with an invoice. The invoice must be accurate, unpaid, and for goods or services provided to another company.
- Submit the invoice to the accounts receivable factoring company when you bill your customer. The factor will verify your invoice and advance you cash – up to 97 percent of the value – within 24 hours. The remaining amount is held in a reserve until your customers pay.
- Conduct business as usual, including submitting more receivables for factoring as needed. Your factor will collect payment from your customers.
- Once the invoice is paid, the accounts receivable factoring company will send you a rebate of any invoice amount previously unpaid minus a small factoring fee.
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The Benefits of Factoring your Invoices
Accounts receivable factoring features a number of benefits that can help you streamline operations and make your money go further. Far more than a simple financing option, factoring is a total business solution. You will work with a dedicated account manager who is committed to helping your business grow and has the expertise to assist you every step of the way.
The many advantages of receivables factoring include:
Unlimited funding potential
Unlike a traditional bank loan, accounts receivable factoring companies do not offer a fixed credit line. Instead, as your sales increase so does your access to immediate working capital.
No monthly minimum or maximum amounts
You do not have to factor a set dollar amount each month to keep your account active. Factor as much as you need, as often as necessary to maintain sufficient cash flow to cover your operating costs.
Qualify with prior financial difficulty
Another significant edge that accounts receivable factoring holds over traditional lending options is its accessibility by companies with poor or unestablished credit. Even if you are just starting up or have encountered previous financial issues you can still be approved for a competitive accounts receivable factoring program without pledging collateral – or even adding any debt to your balance sheet!
Most companies devote a large portion of their time and working capital to handling back-office functions, from collections to vetting new and current customers. Depending on your industry, this investment could vastly reduce the resources you are able to devote to your core functions and make it difficult to grow. Factoring accounts receivables allows you to enlist your factoring company’s help with a number of these administrative tasks, eliminating overhead and freeing you up to focus on growing your business. Back office support may include any or all of the following:
- Collections calls
- Invoice management
- Credit and background checks for current and prospective customers
- 24/7 online account reporting
What are Factoring Fees?
Fees for factoring receivables can be anywhere between 1%-5%. Accounts receivable factoring fees are calculated based on your sales volume, client base, industry and type of program (recourse vs. non-recourse). If you’re looking for low factoring fees with competitive programs, we’ve got you covered. Get in touch today and let us work our magic!
What Types of Businesses Factor Receivables?
If you’re a B2B company, you’re likely eligible for accounts receivable factoring, even if you’re a startup. It’s important to remember that it doesn’t matter if you have less-than-perfect credit. You can obtain the financing you need by selling your accounts receivable to a factoring company.
We work with a variety of industries, including:
Is Accounts Receivable Factoring Right for Your Company?
Does waiting for customers to pay stress you out? Is your business growing too fast that your cash flow can’t quite catch up?
Could you use some extra working capital within the next week?
If you have receivables from credit-worthy customers and could benefit from some additional working capital, then yes, factoring receivables can work for you.
Since approval for accounts receivable factoring is based on the creditworthiness of your customers, it’s a great option for business owners who have been unable to obtain bank financing. If you need additional funds to take on new clients, purchase new supplies, invest in marketing, etc. and don’t want to deal with extra debt on your balance sheet, then factoring is definitely an option worth exploring for your business.
Keep in mind that account receivables factoring companies won’t typically work with B2C companies. In order to qualify, you must work with government or business customers.