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Accounts Receivable Factoring
is often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30 to 90 day terms. Businesses benefit from the acceleration of cash flow.
Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity. This fact makes factoring more attainable than traditional bank and equity financing.
There are usually three parties involved when an invoice is factored:
Seller of the product or service who originates the invoice.
Debtor and recipient of the invoice for services rendered who promises to pay the balance within the agreed payment terms.
Assignee (the factoring company)
Accounts Receivable Factoring keeps your capital working by turning your accounts receivable into immediate cash flow.
Reasons to Factor:
- Obtain a source of working capital
- Relief from responsibility for collection of no-pay and slow-pay clients
- Fill more orders
- Flexible funding program that increases as you increase your sales
- Ability to take advantage of vendor discounts
- To have funds for payroll and taxes
- Extend credit to customers on large orders
- Buy equipment or inventory on demand
Factoring Benefits
Factoring is a great and relatively inexpensive way to improve your cash flow and get the working capital your business needs. Conventional borrowing increases a business' expenses and normally requires additional collateral. In the case of factoring, instead of analyzing a business' financial statements, the business is evaluated on the strength of its accounts receivables. If the business has a product or service that it provides to a credit-worthy customer, then the business is a candidate for invoice factoring. A typical advance is anywhere from 80% to as high as 95%, depending on the industry and volume of business. Accounts receivable factoring does not create debt or require additional collateral. It is very simple to use. Cash can be obtained for invoices normally in 24 hours or less, and as often as the business needs.
This is what it means to your company:
- You gain working capital without adding debt or diluting your equity.
- Advantages of early payment discounts from suppliers.
- Ability to purchase equipment that will increase your profitability.
- It can protect and improve your credit ratings.
- It can increase your sales through credit extensions.
- And most importantly, it allows you to focus on the success of your business instead of worrying about your cash flow.
For quick responses, please e-mail us via Factoring@bestloanmaker.com
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