Account receivable factoring is used by many businesses in need of working capital. By simply selling account receivables or invoices for products or services provided to a “factor” a business can obtain almost immediate access to capital. This benefits many younger businesses and growth businesses that run into cash flow problems at times. A business would sell the invoices for a discount to the factor, which then pays you for them giving you cash instead of having to wait for the invoice to be paid. It also reduces the risk of clients not paying invoices on time.
The factor will be in charge of collecting the payments from your clients. Since they are taking a risk the factor will need to make sure that the client is creditworthy before they purchase that invoice from you. The basis of getting approved is based on the creditworthiness of your client, and not the creditworthiness of your business. This is excellent for a business because many new businesses and a good majority of established businesses have not established any or very little business credit.
The approval process for account receivable factoring is also much shorter than more standard financing options like a bank loan or a line of credit with a bank. Besides having access to instant cash there are a variety of additional benefits for account receivable factoring.
Many business owners are forced to give up equity or ownership of their business when going after capital because investors or business partners will need to be taken on for capital. With account receivable factoring an entrepreneur gets access to capital, but they don’t have to give up any ownership or control of the business.
There is a lot of power in having access to capital because a company can take advantage of special discounts on inventory or business purchases. Often times a supplier will have a sale, but if a business doesn’t have capital they can’t take advantage of it. Suppliers most of the time will offer volume discounts, and also early payment discounts, and having access to the capital so quickly gives them the opportunity to take advantage of these opportunities as they arise.
With account receivable factoring your business can also improve the bottom line by not being forced to offer early payment discounts to clients who pay early. This is because the factors will purchase the invoices from you, and they will be responsible for collecting and processing the payments.
A good business capital search engine will help you locate factors so you can start on your way to working capital.