Accounts Receivable Factoring: Is Your Business Eligible?

AR FactoringYour company may or may not have heard of Account Receivables (A/R) Factoring. If not, what you will be learning in this article will be quite an exciting one. Receivables factoring is an excellent way for companies to receive capital in a short amount of time.

Businesses generally rely on debt when they require cash. The problem with taking out a loan is that a company has to be eligible. It can be challenging for some businesses to meet their essential lending criteria.

Banks generally won’t loan money to businesses that don’t have a lot of assets and who haven’t been around for very long. Companies with poor credit will have an even more difficult time finding financing. Therefore, there may be few options for such companies. Thankfully, receivables factoring offers a good alternative.

The Process of A/R Factoring

Accounts Receivable Factoring involves a company selling their invoices to factor. A factor will purchase them at a discount rate generally around 80 to 90%. That money will be paid in cash and can be used by the company immediately and whatever they want or need.

The factor will then be collecting payments from the company’s customers. After this money is collected, they will then be returning it to the company that sold them the receivables. The factor gets paid by charging that company a fee. How much factoring costs will be dependent on the factor and their fee structure.

Factoring makes it possible to receive money owed to a company much sooner than it would typically be collected. Instead of waiting up to 90 days to receive a payment, companies can get those monies right away (3-7 days) from a factor.

This can mean the difference between staying in business and having no choice but to close. It can also affect whether or not a company can grow its business.

The Advantages of A/R Factoring

There are many advantages to accounts receivable factoring. However, eligibility will not be available to all businesses. Some business models aren’t conducive to a factoring. The best way to determine if your company is eligible or if it would even make sense to get involved in account receivable financing is to contact a reputable factor and ask.

There are certain types of companies that factoring works especially well for, they include satellites sales and cable installation companies, businesses going through Chapter 11 bankruptcy, nursing registries, bodyguard companies, and government contractors.

It is possible to find a Factor in several different ways. Perhaps the most straightforward way involves looking online. The internet makes it very easy to locate and then learn more about available factors. After finding a few that a company might like, they need to contact them and then begin a correspondence.

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