Specializing In Accounts Receivable & Invoice Factoring Advances For Small Businesses

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Introduction to Accounts Receivable Factoring

It is normal for businesses to extend credit for the goods and services they provide. These include practically all businesses, including construction contractors, wholesalers, and various professional practices. Instead, the business must wait for a set grace period, usually several weeks or days to receive payment.

There are instances where clients take longer than the agreed terms to pay their outstanding invoices. Especially when cash flow is tight, some businesses miss paying their bills on time. The delay might be for a few weeks to several months.

If your small business has a lot of overdue accounts receivable (AR), you might find your business in a tight financial bind – even if payments arrive just right before your own monthly bills become due.

One way to can avoid tight cash flow problems is through Accounts Receivable Factoring.

Accounts Receivable Factoring Explained
Accounts Receivable Factoring is a flexible type of financing that cuts your payment cycle into just several days, instead of weeks or months. This allows you to ease the burden on your cash flow, help cover for unexpected expenses, and improve your profitability.

So, what exactly is Accounts Receivable Factoring?

Also referred to as “Invoice Factoring,” it is the process of selling a business’ overdue receivables to an AR factoring company, or simply a “Factor” at a discounted rate. The job of collecting payment from your customers now becomes the responsibility of the factoring company. When clients pay to the Factor, you will get what will remain of the invoice amount after deducting the factoring fees.

Invoice or AR factoring loans offer a viable solution for small businesses that experience long lapses from the time they deliver the goods or render the service to the time the invoices are paid. With AR factoring, you will receive payments on your accounts receivable within a shorter turnaround time.

How Does AR Factoring Work?
AR financing has different requirements compared to other business financing solutions. For one, the credit worthiness of your customers is more important than your own credit standing. Thus, you don’t need to have an outstanding credit record or impressive cash flow to have access to this service.

Access depends more on your clients’ perceived paying capacity within a reasonable amount of time. If the Factor is unsure that your customers will pay, or believes they will have a difficult time collecting payments, your application may be denied. This also determines the factoring fee and how much of the AR the

Factor will purchase.
Factoring companies typically buy 85 to 90% of the invoice, and would pay within a few days. You will not have to wait for a few weeks or months to get your payments.

Every factoring company has its own set of policies for second payments that happen after they collect from your customers. In general, if factor rates are lower, fees for second payments will be higher.

It’s true that you’ll lose some of your income this way, but that is the price for getting money immediately, and giving up the job of collecting payments from your customers.

We specialize it AR factoring and funding. Get in touch with us today for a free consultation session on how to get AR funding.

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