Accounts Receivable Factoring: Is It For You?

2007-03-08 10:33:40

( Insurance )



If you are a small business owner, you personally know the effort of getting enough capital to finance the growth of your business or to meet shortages in cash flow. When financing options like bank loans and credit lines are limited or unavailable, some small business owners turn to accounts receivable factoring.

Accounts receivable factoring is also known as accounts receivable financing or accounts receivable funding. Basically, accounts receivable factoring is selling your outstanding invoices or accounts receivables to a factoring firm who then assumes responsibility and risk on your receivables. The factoring firm, in turn, provides quick cash for your business in exchange for your receivables.

However, the factoring firm will not pay the full amount on your outstanding invoices. They will only pay a reasonable percentage of the actual cost. The cost usually determined by the age and the type of receivable. A current invoice is priced higher than an invoice that is due in a month. Most factoring firms do not accept invoices over 90 days.

Accounts receivable factoring frees you and your business from collection tasks. Passing off collections frees valuable resources to concentrate on other productive tasks related to your small business. Accounts receivable factoring also provides quick cash for businesses experiencing cash flow shortages. It is fast and convenient as it does not require a business plan or even a tax statement.

However, accounts receivable factoring may not be for you. Before you let go off your outstanding invoices, you have to exhaust all the possibilities necessary for your company’s survival. You can contact your creditors and negotiate for discounts. Consider all options available to you. Remember that the factoring industry is not new and is not as regulated as banks or other lending institutions. You should do a thorough research and inspect all contracts.


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