Your business needs a steady cash flow to keep running. Giving your customers the option to invoice their purchase with you is a convenience for them, but it can be an inconvenience to you to wait for them to pay. Your unpaid invoices are what is known as receivables. If you need cash to supplement the cash flow in your business, you have different options. You can take out a line of credit, obtain an asset-based loan, or factor your accounts. Learn the benefits of accounts receivable financing to determine if it is a viable option for your business.

What Is Factoring?

Accounts receivable financing, which is also called factoring, is a cash advance on the outstanding invoices of your business. Typically, you can receive up to 90 percent of the invoice in advance from the lender or the factor. Once the customer pays the invoice, the factor takes out their fees and the amount that was advanced. The remaining balance is sent to you.

Benefits of Factoring

The most obvious benefit of accounts receivable financing is that your business has the cash it needs to fund growth. However, factoring offers other benefits over traditional bank loans or credit cards. With this type of financing, you can repay the funds at any time before the maturity date without penalties. Most factors have an approval process that gets cash in your hands in one to five business days. Most banks take that that long to get all the documents together to submit the loan application, then you still have to wait for the approval.

With factoring, the credit score of your business is not taken into account. This makes this type of financing appropriate for new businesses that have orders but no long term record in the industry. The factor does look at the credit report of your customers. You do have to notify your customers of the process, but many businesses understand the need for accounts receivable financing and appreciate that you are looking for options instead of hounding them for payment.

The factor can be a partner with your business to collect outstanding invoices and help you know which customers are a good risk by looking at the record of their company. You don’t have to factor all of your invoices and can choose which customers you submit to the factoring company. Your business doesn’t have to wait on traditional bank financing to increase its cash flow. Look for more information about accounts receivable financing from a reputable company that wants to help your company succeed.