The Ultimate Business Financing Solution
, or account
receivable factoring, is the
process of selling commercial
accounts receivable (invoices) at a discount to third-party factoring
companies. Although receivables factoring originated thousands of years
ago with the ancient Greeks and Romans and, to this day, remains the
most widely used business financing technique among European companies,
American small to medium sized companies have only recently begun to
many businesses use a form of account receivable factoring every day,
but it is
called something else: the credit card. When customers buy
and services using credit cards, the
sell their new receivables to the credit card companies for
think about factoring
until you've read this ...
It could save you many thousands of dollars and a lot of aggravation!
And like factoring companies, credit card companies
their money by charging the businesses that accept
their cards a few percentage points by discounting
deposited into the merchant’s bank account. The credit card companies
then collect the full amount -- and their profit -- from the consumer.
We don't call this business factoring, but it is, in essence,
what business factoring is all about – selling an account receivable at
a discount for immediate cash.
Apart from credit cards,
account receivable factoring is largely unknown to American businesses.
people who know anything about it associate the practice of factoring
with the textile and garment industries, but it has recently
expanded to include many different product and service-oriented
industries of all sizes. Small business factoring is now widely
available in the U.S., and in today’s economic climate, is
becoming a popular small business financing method for
cash and credit-starved owners of all types of companies.
Who Can Use Business Factoring?
Factoring companies have very few, uncomplicated requirements for
businesses that are interested in account receivable factoring. While
weeks of preparation, and
mounds of paperwork, any company who wishes to improve its cash flow
and grow using account receivable factoring must meet only two simple
- Have verifiable invoices to creditworthy business or
- Require payment from invoiced customers ranging from two
weeks to two
months. (Some factoring companies will allow factoring invoices outside
Beyond these basic criteria, factoring companies will each have unique
requirements for specific industries and niches. In addition, many
factoring companies have a minimum dollar volume for their clients’
receivables and/or the invoices they purchase.
If you are a medical
professional or operate any kind of
company, you'll want to find out more about how medical
factoring can help
your business thrive.
and subcontractors competing in today's challenging construction
industry, discover how
invoice factoring can solve your cash flow problems and pave the
to a very prosperous future.
No bank loan or business line of credit
a candle to the benefits a factoring financing line gives to any freight, trucking or logistics company.
In a few short days, your business can have a stable, predictable cash
flow and an automatic, debt-free way to finance growth.
staffing agencies already know that receivables factoring
a powerful edge in this competitive, fast growing industry. Find out
how easy it is to put this powerful financial tool to work for your agency!
account receivable factoring could help many business owners
and executives who currently do not use it, receivables factoring does
not work for every type of business. Companies that receive cash or
credit card payments in full and those that don’t want to expand to
include customers who require terms do not need account receivable
Also, businesses that sell exclusively to consumers will not be able to
use the services of traditional factoring companies. So, restaurants,
most retail stores, online auction businesses, and the like cannot
ordinarily make use of account receivable factoring.
Why Use Business Factoring?
For smart business owners, the benefits of factoring account
receivables easily outweigh its costs, making it a superior tool for
cash flow management and growing your company. Here are some of the
reasons it may be a good choice for you:
- Improve your cash flow
- Use your customers’ credit, not yours
- Tighter control of your receivables, with outsourced
- Grow your company by extending terms to your
- Off balance sheet financing
Improve Your Cash Flow
Many good and profitable companies go out of business because of cash
flow problems – money gets tight and they miss payroll or can’t pay
other critical overhead expenses.
Factoring companies give you the peace of mind of knowing you will have
access to cash as long as you have paying customers. Once you are in a
factoring program, you send some invoices to your factor today, and
your money can be in your bank account tomorrow.
Quicker turn-around of your receivables means you can sleep well at
night knowing that you have money in the bank to make payroll, pay the
rent, keep the lights on and buy additional supplies and materials. And
you can take advantage of prepaid discounts with your vendors, as well.
Use Your Customers’ Credit
Business owners often put a lot on the line to start their companies,
and as a result, their personal credit suffers. And it can take years
, not to
mention the three consecutive years of
profit the banks want to see before they will loan you money.
Factoring companies don’t care about your financial statements or
either your personal or business credit. For business
factoring, you need good customers, customers with good credit and,
most importantly, the ability to pay your invoices.
Tighter Control Of Your Receivables
When starting your own business, you probably didn’t dream of spending
your time running credit checks on your new and existing customers,
keeping track of who owes you money and how long they are taking to pay
you, or making those awkward phone calls to plead for your money.
Factoring companies do all this for you as part of their business
factoring service! Plus, you will have up to the minute reporting on
your receivables available 24-hours a day, every day.
Grow Your Company
With business factoring, extending terms to new and existing
customers is easy. If you don’t currently offer terms, you are probably
missing out on a lot of business. And even if you are offering terms,
you may have turned down lucrative opportunities because of potential
negative impacts to your cash flow.
Bigger companies and governmental agencies expect terms and will shun
companies that don’t offer to invoice them. Account receivable
eliminates this barrier since it gives you immediate access to your
money regardless of the size of the customer or the job.
Off Balance Sheet Financing
When your business borrows money, a liability is created on your
balance sheet. Bankers, potential investors, and other creditors
generally take a negative view of your
Business factoring is never a loan, never creates a
liability. The only effect factoring invoices has on your company’s
books is that your receivables are converted to cash – as though they
had been paid by your customers. Because your balance sheet
does not change, account receivable factoring is sometimes referred to
balance sheet financing.
What Does Business Factoring Cost?
Some business owners object to the perceived cost associated with
account receivable factoring. In most instances, though, this is due
not fully understanding what business factoring does (or will
do) for the business than the actual costs of factoring invoices.
Account receivable factoring is generally more expensive than
business financing (lending, primarily) with costs averaging 2- 5% for
invoices paid within 45 days. But when the business owner or executive
is made aware of the value of the additional services factoring
companies provide – such as collections, bookkeeping, accounting, and
credit reporting – receivables factoring looks much more
attractive from a cost standpoint. More importantly, the costs of not
factoring invoices can be tremendous. By turning away business because
the company cannot afford to extend terms, the owner or executive
denies the firm the profit margin and the growth it would enjoy if it
were to factor its receivables.
Is Business Factoring For Your Business?
How can you determine if factoring will enhance your business?
If your company has good invoices to sell and one or more of the
following conditions is true, business factoring will benefit
So, after reading through the above list, do you think account
receivable factoring will help you and your firm? Chances
are, the answer is yes if any of the above describe your company. The
next step: find out how
, or better yet, talk
to a business
financing specialist to get started right away!