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.

Factoring makes it possible to see receive money owed to a company much sooner than it would normally be collected. Instead of waiting up to 90 days for an invoice to be paid, companies can receive those monies right away (3-7 days) from a factor. This can mean the difference between staying in business and being forced to close. It can also affect whether or not a company is able to grow their business.

There are many advantages to accounts receivable factoring. However, not all businesses will be eligible. Some business models simply aren’t conducive to a factoring. The best way to determine if your company would be eligible or if it would even make sense to get involved in account receivable financing is to contact a reputable factor and ask.

There are certain types of companies that factoring works especially well for, they include satellites sales and cable installation companies, businesses going through Chapter 11 bankruptcy, nursing registries, bodyguard companies and government contractors.

It is possible to find a Factor a number of different ways, perhaps the easiest way involves looking online. The internet makes it very easy to locate and then learn more about available factors. After a company finds a few that they like, they need to contact them and then begin correspondence.