Factoring Your Receivables Can Help Your Business Operate and Grow

By: Berwyn J. Kemp

Does your business provide products and services to other businesses or to government agencies? If so, then you know that one of the big problems you face is having to wait 30 to 60 days or longer before your invoices are paid.

This can be particularly troubling for your company if your business is growing fast and you are adding new customers and clients on a regular basis, because your supplier’s credit terms are much shorter than 30 days as a rule. And you need capital to pay your suppliers and your other overhead and expenses.

One solution you should consider to this problem is to factor your accounts receivables, which is simply another name for invoices. Many well known and respected businesses today are using this form of financing to provide the working capital they need to more effectively operate and grow.

Moreover, an accounts receivable factoring facility is a lot easier and quicker to set up than traditional bank financing. And can be set up in a matter of days, because the factor bases their decision on the credit worthiness of your customers or clients, not upon your personal or business credit.

This can be particularly important if your business is a relatively new business or your company has had some financial difficulties in the past, because with factoring providing your customers have a good credit position, you can still get the funding you need with factoring.

Whereas, with traditional bank financing banks require audited financial statements, lots of collateral and personal guarantees. And even with all of these requirements the process can still take months. In addition to this in today’s economic climate many banks are retreating from the business loan market making bank financing even harder to obtain.

With invoice factoring a factor will advance you up to 90 percent of the value of your commercial or government invoices. Then once the factor collects on the invoice in 30 to 60 days they will rebate back to you the remaining ten percent balance, less a small discount for their services.

Another good thing about accounts receivable factoring is that it is a naturally growing source of capital for your company that will grow right along with your company. Since the amount of money that you can receive in advance is based upon the amount of your current invoicing, as your business grows the amount of money you can obtain will also grow as well.

And, as with any kind of financing agreement that you enter into you should always carefully read and fully understand the full agreement. What’s more, you should always have a competent attorney in the area of business finance review all financing documents, and explain anything that you don’t fully understand.