Factoring Accounts Receivable
Factoring, Invoice Factoring, Accounts Receivable Factoring, Receivables Factoring, Factoring Account Receivables, and Receivable Factoring all mean the exact same thing. The selling of a company's accounts receivable or invoice(s) at a discount, to a factor, who assumes the credit risk of the account debtors. Essentially it is the sale or assignment of accounts receivable or invoice(s) for immediate cash. This provides businesses from start-ups, mid-size, and large companies access to immediate working capital and provides cash flow for expansion or growth without incurring debt or reducing equity.
Accounts receivable financing is not a loan, so there is no need to make payments or create debt for your business. The major advantage of accounts receivable factoring is that it is easier to obtain than a business loan from a bank. Most factoring companies will approve a business based on the credit worthiness of the companies that are being invoiced and will not require a business's financial statements or any repayment guarantees.
Generally, the business will receive 70%-90% of the invoice amount in 24 to 48 hours after an account is established with a factoring company. When the factoring company receives payment for the invoice, the remaining 10%-30% is paid to the business less a service fee between 1.5% to 3% of the invoice amount per month. The factoring companies' service fees vary based upon monthly volume, industry, and location.
Types of commercial accounts receivable factoring include Invoice Factoring, Purchase Order Financing, Freight Bill Factoring, Construction Factoring, Government Contracts, and Medical Factoring. Industries include manufacturing, service, staffing, distribution, wholesale, communication, pharmaceutical, printing, telecommunication, and transportation companies and many others.
Once a factoring company has purchased invoices the factor becomes a bookkeeping service and collection service for the business that frees up valuable time for the proprietor to concentrate on running the business.
Factoring offers many options which a company can choose to meet its current business needs. Using the services of a factor, a business gains a valuable financial partner who can provide administration, working capital, business expertise, and financial business guidance. With a factor as a partner, a business is able to focus on developing, producing, and selling its products or services.
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Invoice factoring companies provide businesses in need of instant capital with the funds necessary for them to operate. Invoice factoring is not a loan from the factoring company, instead the factoring company purchases the invoices owed or accounts receivables from the business.
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The new year of 2009 is starting off with many economic challenges for small to medium sized businesses.small business owners must be quick to put plans for the New Year into works in order to save money, maintain cash flow during these tough times. Learn how invoice factoring can provide much needed reseouces along with other tips for managing cash flow.
Invoice factoring is when a third party, i.e. an invoice factoring company "buys" off an invoice which you have issued to your customer and pays you around 60 to 90 percent of the invoice value in 24 to 48 hours and the balance amount, minus a factoring fee, when they receive the payment from your customer on the due date.
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A machine shop can improve their cash flow with invoice factoring. Invoice factoring is becoming an increasingly popular way for businesses of all types to generate capital fast. With the current recession, traditional financing options are becoming more difficult to utilize.
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Factoring is the sale of commercial invoices or Accounts Receivable at a small discount. Businesses can generate cash and improve cash flow without taking on additional debt. Factoring use to be a financing source used by the textile and furniture industries. Today, factoring has become a source of financing in any industry that creates Accounts Receivable by extending terms to its business customers.
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