subject: Account Receivable Factoring [print this page] The economy has taken its toll on businesses and individuals. Once profitable businesses are finding themselves in desperate need of working capital and they are finding their customers are taking longer to pay on their invoices. If you are tired of calling customers and trying to get them to pay their invoices, there is a solution that can help. Accounts receivable factoring is one of the best ways to get your customers to pay their bills and you don't even need to deal with the collection process.
Accounts receivable factoring involves selling off your invoices to a factoring company. They will provide you with cash today for the invoice, usually averaging about 80% of the total invoice amount. Once they are able to collect the money from the customer, they will pay you the reminder of the amount minus their fees.
Factoring provides you with money to keep a positive cash flow. This allows you to pay your invoices to your vendors on time. Being able to make your monthly payment obligations will improve your corporate credit rating and help you generate a positive credit score. Many of the small businesses that use accounts receivable factoring find that it is the biggest difference between business success and failure. Invoice factoring provides you with cash to purchase raw goods, equipment, and a handful of other things that will provide you with greater business success.
One of the biggest decisions you need to make with accounts receivable factoring is choosing the right firm to handle your invoices. If you choose a company that has high fees, you could be losing money as it decreases the value of your products and your inventory.
Invoice factoring does provide a significant advantage over other types of financing as you do not need to go through an approval process with a lender. Since this is not considered a loan, the factoring firm will approve you based on the timeliness of your customer's payments. If they find that your customers usually pay within the 90 day window, you will have an easier time gaining the funds. However, older invoices may pose a significant problem to the factoring company and they may be unable to provide you with the funding you need. This is due to the fact that when an invoice is older than 90 days, the success rate of having a person pay on it is extremely rare.
