Factoring & Accounts Receivable Financing

What is Factoring?

Also commonly referred to as accounts receivable financing, in factoring a business sells its receivables to a 3rd party (factoring) company at a discount. The factoring company pays the business immediately and is paid by your customers later. Factoring is becoming more prevalent as business owners realize it is a debt-free way to get paid sooner so you can smooth out the gaps in your cash flow caused by slow-payers. Unlike accounts receivable financing or invoice discounting, in factoring you are making a sale and can use the money to suit your needs.

How Does Factoring Work?

So how does the process work? The factor, or the 3rd party funding company, advances most of the invoice amount to the business owner. Depending on how credit worthy of the business and business owner are of the billed customer, expect an advance between 70% and 90% of the invoice amount. When the bill is paid, the factor remits the balance not including a charged transaction fee.

Factoring Loan Process

image courtesy of Bliquid2Grow.com

Know your Customers

It is important to keep in mind that factoring relies more on the creditworthiness of your customers than on yours. A poor credit background could affect both the advanced rate as well as the potential interest rate at which you will be funded. So, before you factor your invoices keep in mind the payment tendencies of each customer. Determine which customers tend to pay on time and those who pay late. Consider which clients have good or poor credit. If certain clients are habitually late paying debt it may make sense to factor these debts.

About Factoring

Is my business even big enough to use factoring? Do not be hesitant to try factoring because you think your business is too small to do so. Companies of all sizes, from  mom and pop shops to Fortune 500 corporations, rely heavily on factoring to increase cash flow for better business operations. Am I in the right industry? Factoring spans all industries including manufacturing, textiles, trucking and transportation, health care and staffing. How much do I need to factor? The simple answer to that questions is it depends on your unique situation. One company may choose to factor a few invoices while another my factor all invoice. That being said if you have read this far you may just want to give us a call or fill out our online application below.

A Small Leader in Business Lending

CapitalFront was launched with a simple premise – create an easy, accessible and rapid process for small and mid-size businesses to fund their growth. CapitalFront strives to bring a wide array of financial products, including merchant cash advance, receivable financing, factoring, SBA lending  and fixed rate term solutions, to independent business owners nationwide. Call today or fill out our online application.

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