Commercial account receivable financing, or the sale of accounts receivable to a "factor", is one of the oldest forms of financing. The factor advances immediate cash for up to 90% of the outstanding recievable value, then remits the remaining 10% – less a fee – after fully collecting on those receivables. So obviously having customers with good debt records would be beneficial. It would not be good for you or your factor if they are unable to collect on any of the accounts receivable.
The 3 Main Advantages:
- Immediate Cash/No Waiting. You can receive quick payment following shipment, delivery and invoicing (less than 24 hours in some cases) to generate cash much sooner than if you collect the money on your own.
- Analysis of customers’ creditworthiness. Prior to purchasing your invoice, a factor conducts a credit analysis on the client you are invoicing to determine the risk. You are entitled to the resulting analysis and can assist you in your future business dealings with that customer/client.
- You are not borrowing money. Again, the cash advanced is based on your client’s credit status, not yours. You may qualify for factoring even if you are a young company without an established track record, have a tax lien, or even declared Chapter 11 bankruptcy. This is not considered a loan since you are literally selling your own receivables. Factoring is also not recorded on the balance sheet.
Some of the services offered can include: Same Day Funding; Daily Reporting; No Term Contracts; Free Credit / Collections Services. What account receivable financing could mean to your company:
- Gain working capital without adding debt or diluting equity.
- Take advantage of early payment discounts from suppliers.
- Purchase equipment that will increase profitability.
- Protect and improve credit ratings.
- Increase sales through credit extensions.
Let us help you with commercial account receivable financing and find a factor that matches your business needs.