What is an account receivable credit line and how do you get one? You pledge to sell your invoices or receivables to a "factor" at a small discount, the invoices to your customers for goods delivered or services rendered (accounts receivable) can be converted into a type of "credit line" for immediate cash.
This type of financing is very beneficial if your business is in need of working capital and does not have the time to wait for its customers to pay their net term invoices. It is also very flexible since you are only borrowing according to your needs and against your own receivables.
Do I have to factor all my invoices?
Absolutely not. You may not want or need to factor all your invoices.
Does the factor actually buy my accounts receivable?
Yes. The money is not a loan, it is an outright purchase of the invoices at the time of billing. So, it isn’t a true credit line.
How does the factor collect?
The same way you collect. Your client simply changes the address makes payment to the factor.
What are the requirements for buying an invoice?
The work or service must have been completed, delivered and accepted; and your client must be a creditworthy risk.
Can I qualify even if we are just starting in business?
Yes you can, if you have creditworthy customers.
How does the factoring company make money?
The factor typically advances up to 90% of the total invoice value upfront and then releases the remaining 10%, less their fee, once the receivables are fully collected.