Accounts receivable factoring is a debt-free financing solution that allows companies to unlock working capital that is normally tied up in their receivables. So, here’s the question: is accounts receivable factoring right for you?
Before we discuss the benefits of accounts receivable factoring, let’s start off with some of the basics.
Accounts receivable factoring is a financing solution used by many B2B companies. The process is relatively simple. A company sells its open receivables (invoices) to a factoring company. When the factoring company receives the invoices, it advances a percentage of the invoice total right away, eliminating the wait on customer payment. Next, the factoring company sends the invoice to the customer. Once the customer pays the invoice to the factoring company on their agreed upon terms, the remaining percentage is remitted back, less a factoring fee.
In the section above we explained what accounts receivable factoring is, but let’s use some real numbers to demonstrate how it exactly works.
Your customer owes your business $100,000 for your services. The customer has good credit and is well known, but has never paid any invoice sooner than 30 days. Instead of waiting 30 days or more for payment, your company decides to finance with an accounts receivable factoring company. Once you’ve selected a factoring company and are set up, you’ll send the $100,000 invoice to them. The factoring company advances you up to 95 percent of the invoice value ($95,000) within 24 hours. While the factoring company waits for your customer to pay the invoice, you’ll have working capital to meet the demands of your business. When your customer pays the invoice on the agreed upon terms, the remaining 5 percent ($5,000) is remitted back to you, less a small factoring fee.
Below are a few questions to ask yourself to see if accounts receivable factoring is right for you.
If you answered yes to any of these questions, accounts receivable factoring could be the right financing option for you. Below, we’ve explained how accounts receivable factoring can work for you in these situations.
If you’re waiting for customer payment, stop waiting. Accounts receivable factoring eliminates this wait by paying you same day on your open invoices.
If you need cash to catch up on bills, meet payroll, invest in new resources, or could use it for any other reasons, accounts receivable factoring can unlock the working capital that is tied up in your receivables.
Companies that are growing quicker than cash is coming in use accounts receivable factoring to give them the ability to take on new and bigger contracts. The more you invoice, the more cash you’ll receive from the factoring company.
Approval for accounts receivable factoring is based on your customers’ credit rather than yours. So even if your credit is less than perfect or maxed, you can still obtain the financing you need.
Even if you were turned down by a bank for funding, accounts receivable factoring can still provide you with the financing you need. As noted above, it is based on your customers’ credit and financial history rather than yours.
If you need to speed up your cash flow to operate and grow your business, accounts receivable factoring can help you. Contact TCI Business Capital today to get approved in as little as 15 minutes.