What is Accounts Receivable Financing?
Accounts receivable factoring companies, also known as invoice financing companies, buy and sell invoices for other companies. The actual process may vary from company to company, but the way it works generally is that a company makes a sale that includes a credit term. The customers are then invoiced or billed for payment which is then due at a later date. At this point, the company has two choices: wait for the customer to pay his or her bill or, sell the invoice at a discounted price to a factoring company in exchange for an immediate lump sum payment. For cash strapped companies looking to raise capital quickly without going into debt, option number two is a great way to turn future receivables into useable cash.
Factoring can be used in a number of situations. In some cases, companies wish to expand physically or to increase inventory. Rather than adding debt to the company’s bottom line, they can choose to turn future receivables into useable cash. Depending on the needs of the company, they can choose to sell a portion of their invoices or all of them. Because this is not a loan, the company has no obligations to repay the advance nor are there any prequalifying criteria. By using factoring, a company can preserve future cash flows and maintain adequate capital to run day to day operations. There are no restrictions on the use of the money, so the company can choose any number of options such as financing growth or covering unexpected expenses or even to beef up cash reserves.
Another situation that companies may find factoring helpful in is in the collection of overdue invoices. Factoring companies are excellent in the collection arena. Without this skill, factoring companies are doomed to fail. Companies can take advantage of this expertise and sell off uncollectable invoices at a discounted price and allow the factoring companies to shoulder the responsibility of chasing down payment. By doing this, companies can offload bad debt and offset losses quickly, which creates a better financial picture.
Finding the best accounts receivable financing company can seem like a daunting task. However, the best factoring company can provide your business with a customized commercial capital funding program that will help you meet your financial goals without going into debt. Receivable financing companies with plenty of industry experience will have the knowledge and expertise you need to ensure that you end up with the cash you need at a good rate so that your business can grow and succeed.
So, if your business is looking for usable cash to cover your regular monthly customers, to expand and acquire new customers or to take advantage of supplier discounts, find a quality accounts receivable financing company. They will work with you to ensure that your business can meet and exceed its goals without the hassle of qualifying and going into traditional bank debt.