Managing cash flow can be challenge, especially when your clients are slow to pay on invoices. To help you keep your business operating when payments are late, factoring is a common financial solution to help you get immediate cash without spending your resources on collections.
What is Factoring?
Factoring is when a business sells its account receivables to a third party called a “factor” in order to gain access to immediate cash. The factor will give a business a percentage of the value of its accounts receivables to help provide liquidity during crunch times. The factor assumes the responsibility and risk to collect on those outstanding invoices, taking the burden of collection away from your staff.
Who Uses Factoring?
We help undercapitalized companies who have just secured a large contract that pays slower than the business owner can financially handle. Industries that often face these challenges often include trucking, security services, staffing, home health agencies, construction, and others with large invoices. Factoring is beneficial to any business with a large invoice with weekly or bi-weekly payroll but receives payment on invoices over 45 days.
What is the Application Process?
As part of the application process, a factor will review your accounts receivable aging report to review your outstanding invoices and the risk your company has incurred. The factor will evaluate your clients’ creditworthiness, your industry, and your sales volume among other things. So for businesses lacking a strong credit history, factoring might be a better avenue than pursuing a loan.
Will My Clients Know That I’m Using a Factor?
Since factors are discreet, clients are seldom aware that a factor is involved at all. The factor does need to notify the client that they should pay the factor instead of the company that provided the goods and services but communications is limited. In the event that your client ultimately doesn’t pay, your business will be responsible for returning funds to the factor.
>>Improve cash flow when your working capital is tied up in unpaid invoices.
>>Alleviate risk by getting access to cash to pay off your current loans and debt.
>> Take the burden of debt collection off the shoulders of your staff to focus more on your operations.
>> Be a better alternative than loans for businesses with challenged credit history.
The application process for factoring is much faster than a typical loan application with a bank, getting you faster access to cash without all of the paperwork.
Your team could spend countless hours trying to collect debts, costing you more money in wages and taking your team away from the focus of your business. For a small fee, a factor alleviates the headaches and extensive time to collect on your invoices.