Accounts Receivable Factoring: Is Your Business Eligible?

Your company may or may not have heard of receivables factoring. If not, what you learn in this article will be quite exciting. Receivables factoring is an excellent way for companies to receive capital in a very short amount of time. Businesses generally rely on debt when they are in need of cash. The problem with taking out a loan is that first of all, a business has to be eligible. It can be very difficult for some businesses to meet their basic lending criteria.

Banks generally won’t loan money to businesses that don’t have a lot of assets and who haven’t been around for very long. Companies with poor credit will have an even more difficult time finding financing. Therefore, there may be few options for such companies. Thankfully, receivables factoring offers a good alternative.

Accounts receivable factoring involves a company selling their invoices to factor. A factor will purchase them at a discount rate generally around 80 to 95%. That money will be paid in cash and can be used by the company immediately and whatever they want or need. The factor will then collect payments from the company’s customers. After this money is collected, they will return it to the company that sold them the receivables. The factor gets paid by charging that company a fee. How much factoring costs will be dependent on the factor and their fee structure.

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The Broker’s Role in the Factoring Transaction

What is your role in the factoring transaction? How involved should you be? Everyone has different feelings about the answers to these questions. This article will attempt to provide some general guidelines and helpful ideas.

The primary initial role a factoring broker must serve is as an “Educator”. First, you must educate the prospect about factoring, invoice funding, po financing, accounts receivable factoring. Understand the business problems your prospect is facing and explain how factoring may solve those problems. Assume the prospect knows nothing about factoring; don’t forget, factoring is a foreign, and often scary, concept to many entrepreneurs. Slowly walk the prospect through the benefits of factoring, with particular emphasis on the impact the benefits will have on his business. Also explain the logistics of factoring and what the factor is likely to expect of him.

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Payroll Financing

We all know that the banks do not provide a friendly credit environment to small, growing businesses. If they offer any money, it usually isn’t enough. This often leads to an inability to grow your company due to a lack of funds. Well, there’s a type of financing out there that is greatly increasing in popularity in our industry. It’s called factoring, also known as invoice factoring, accounts receivable financing, or purchase order financing. This type of financing concentrates on your customer’s ability to pay, not yours.

Factoring is the sale of your accounts receivable (invoices) to a funding source at a discount off the face value in return for immediate cash. The funding source is known as a factor.

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