What is Accounts Receivable Factoring?
Accounts Receivable Factoring is a form of asset-based financing. AR Financing is the method of selling commercial accounts receivables by a business to get an instant cash payment of the accounts before their actual due date.
Accounts Receivable factoring differs from borrowing. The accounts receivables are sold rather than simply offered as collateral. The net result is that your company can convert its receivables into immediate operating cash. You will not have to wait 30, 60, 90 days or more for your customers to pay. This method places the time, cost, and effort of a collection into the hands of a funding company, providing you the time to concentrate on what you do best – run your company. Your company receives the cash it needs when it needs it, so that you may best run your business.
Why do companies use Accounts Receivable Factoring services?
Any business that invoices other businesses or government entities for delivered goods and rendered services can benefit from factoring. Many business owners see these services useful because of the following reasons:
- Are experiencing rapid growth and need to purchase materials, pay vendors and cover operating expenses
- Want to obtain immediate cash for any business use without creating a debt — no principal or interest to repay
- Want to expand their line of business or take on larger accounts
- Are labor-intensive industries and need to meet payroll
- Receive slow payments from Government and Municipality accounts
- Are start-ups with no financial track record
- Have seasonal cash flow crunches
- Need short-term cash to use as a bridge loan
- Have to improve the business’ credit rating
- Need to make timely tax payments
- Want to benefit from trade discounts
- Have State or Federal tax liens
Isn’t Accounts Receivable factoring a new trend in financing? Won’t it be gone in a few years?
Factoring is one of the oldest forms of financing available. The garment and apparel industry has been taking advantage of factoring for hundreds of years! Therefore, it has been around a long time and will continue to be available for you. The trade areas in which factors operate has grown substantially in almost every business line imaginable. The industry estimate of total U.S. factoring volume is close to $200 billion today!
What are cashflow needs?
Cash flow needs to prevent a business from achieving its growth potential. Often, companies without sufficient cash flow must turn away additional business and, therefore, added profits. Some companies can rely on bank financing to meet their working capital needs. But many are not able to meet eligibility requirements for bank financing. Either the business is new, it lacks steady earnings, or the financial ratios are not at the appropriate levels.
I want the best deal, and I need funds as quickly as possible. Can you shop around to find the best solution for my business’ cash flow needs?
B2B Funding has access to more than 150 Funding Source Companies nationwide. Our objective is to confidentially find the most competitive discount rates for your business as soon as possible with the best source for your line of business and your customer base. An account can be opened within 5-12 business days, and once you’re online, future funding requests can be wired to your account in as little as 24-48 hours.
Do we have to factor every invoice?
Factor only those you want and when you want. We do not blanket your receivables, thus, providing maximum flexibility.
Do we have to factor a minimum number of future invoices?
No. We do not require a minimum number of receivables or minimum dollar value of invoices. Factor as little or as much as your business needs.
My business is new and has no credit history. Can it qualify?
Yes. No credit, or bad credit, no problem. We base our judgments on the creditworthiness of your clients. As long as you have at least one creditworthy client, then we will most likely be able to help you.
What is the benefit of factoring vs. going to the bank for a loan?
As a result of a massive economic restructuring of the business community (i.e., rapidly evolving technology, changing business conditions and downsizing), banks are struggling with unprecedented levels of bad debt and are being prevented from providing capital to growing businesses due to new, burdensome regulations. As a result, many healthy, profitable businesses are finding that they are “unbankable.”
I see the benefits of factoring, but will my customers think I’m in financial trouble or that I’m going out of business?
Factoring is used by many of the largest corporations in the world to improve cash flow, support growth, and increase profits. Many of your customers may already utilize this service, and others may be familiar with it through other vendors. The fact that you qualify for this line of funding makes a compelling statement. We are providing a virtually unlimited credit line to you, based only upon your receivables as collateral. In the process of checking an invoice, we tell your customers that you have been provided an unlimited credit line and that we are providing receivables management as well.
What happens when the factoring process begins?
- The funding company advances a certain percentage of the invoice amounts to your business.
- The factor holds a percentage of the invoice amounts as a reserve.
- Assumes the right to receive payment on the invoices.
- The funding company receives payment on the invoices from your customers.
- The factor rebates the reserve amount minus a small service fee to your business.
Sounds too good to be true? Is there a catch?
There is no catch at all. Perhaps you have not been exposed to this type of asset-based financing before. Factoring has been a powerful financial tool for centuries, but until recently, only huge corporations could qualify for this service. Now small to medium-size companies can be eligible and receive the same benefits.