Account receivable factoring is where A/R and invoices are your most valuable asset. "Factoring" is simply a way to finance your sales. You sell your open invoices at a small discount and you get the cash now. This cash can be used for almost any business expense such as paying for utility expenses, salaries, buying new equipment, or even paying for a new marketing campaign.
There are several benefits to account receivable factoring which are outlined below:
• You don’t give up equity as with investment capital or new partners.
• You can take advantage of supplier early payment and volume discounts.
• You have the ability to make volume purchases from suppliers.
• No more offering early payment discounts to customers.
• Elimination of your bad debt. Factoring is non-recourse.
• No additional debt, factoring is not a loan. (off balance sheet)
Remember, the proceeds from account receivable factoring are not a loan. You are literally selling your open invoices for their face value less a small discount. Therefore, the creditworthiness of your customers is a critical factor in determining whether this will work for your business or not. If your customers do not pay on time, then the company which purchases the accounts receivables from you will not do business with you again, and you will not get the quick financing boost when your business needs it.
There are always unpredictable expenses when operating a business, so account receivable factoring is an excellent option to look into further. Browse our funding directory of over 4,000 lenders for free by clicking on the links below.