Maybe you’ve heard of accounts receivable factoring but aren’t entirely sure what it is or if your business could use it. If that is the case, a quick skim of this article can help clear up a few things, including what accounts receivable factoring is, how it can help you, and what other funding options your small business has.
What is Accounts Receivable Factoring?
Accounts receivable factoring is a process in which business owners sell unpaid invoices to factoring companies at a small discount in order to secure working capital quickly, rather than waiting for the invoices to be paid in regular time. The factoring company collects directly from your clients, and therefore they are more concerned about the credit scores of your clients than they are with your business credit score. The process of factoring can appear complicated, but it is merely a way to bypass the wait before your clients pay you, so that you can receive 80-85% of the outstanding balance without delay.
Does Your Business Need Accounts Receivable Factoring?
Factoring is ideal for business who have trouble with their receivables management and need a cash injection quickly. For example, if you need to pay your employees or order more product but have not been able to collect your receivables yet, you can factor unpaid invoices to acquire capital in a timely manner.
Many small business owners prefer to take out a loan, but do not have time to go through the traditional loan application process and aren’t sure if they will even be approved. In this case, factoring can be a helpful option; however, one should keep in mind the amount of profit you will lose on the invoice(s) since they will be sold at a discount. Like anything, it is important to understand the details and cost of the financing solutions you consider. Here is a summary of the ins and outs of factoring if you would like to explore accounts receivable factoring further.
What Are Your Other Funding Options?
Factoring can help with immediate cash flow needs, but giving up profit on each invoice may not be the best way to grow your business. With Lendified, you can get a short term business loan based on the overall health of your business, not just your credit score. Through our simple online process you can apply in minutes, get a free quote, and receive funding in as fast as 48 hours.