Factoring receivables – also known as invoice factoring – is a popular debt-free source of immediate working capital. Companies that provide services or products to other companies are eligible for this helpful alternative to borrowing which speeds up cash flow without incurring debt. The process turns the money sitting in a company’s stack of accounts receivable into ready cash in the bank that can be used without restriction or limits.
When a company’s customers negotiate long payment terms of 30 to even 90 days, the wait to be paid for completed work is challenging for most business owners. Having too much projected income tied up in outstanding invoices can jeopardize a company’s ability to keep up with payroll and operating costs. Without deep reserves to keep running, companies struggle with paying their own vendors on time. That can quickly damage their own credit scores, making it more difficult to take out a bank loan or a line of credit. Accounts receivable factoring can resolve both temporary and longer-term cash flow struggles and empower business owners to plan for the future.
Invest in Your Company with Receivables Factoring
Many business owners are stuck on a cash flow treadmill that keeps them running to balance fixed expense timing with unpredictable income timing. They can never get ahead to invest in growing their company and don’t have the collateral or long business history required for bank loans. The bottom line is that at any given time your customers owe you money: you just need to access that money to use as you wish.
You have completed a service or delivered a product, or, in the case of companies that work on contract, you have finished benchmark deliverables on time. You have sent out invoices and the long wait for payment has begun. Invoice factoring companies allow you the option of turning those invoices into immediate cash. Factoring companies “buy” your invoices at a discount and advance you a majority of the value of the invoice, with the remainder of the invoice value sent after the customer paid. This is different from invoice discounting where you can use your outstanding invoices as collateral for a loan. The factoring discount rates – or factoring fees – are usually significantly lower than the interest rates charged for invoice discounting.
Top-tier invoice factoring companies work hard to help their clients receive money when they need it to invest in purchasing more inventory to sell, hiring more staff, or take whatever steps necessary to expand their business and become more profitable. With their advances, business owners can bridge the gap between finishing a job and getting paid for it, as well as save for growth.
Creditworthy Customers are Key
Since factoring receivables depends on your customer to pay what they owe you, factoring companies evaluate your customers’ credit history and not yours when they approve your application for factoring and determine your factoring rates. As long as your customers are creditworthy and can be expected to meet their own financial obligations, you are eligible to benefit from the expedited cash flow that comes with factoring receivables. You are free to factor as many invoices for as long as you like and keep your business running smoothly without waiting for the checks to come.
Every day, thousands of businesses of all sizes discover the benefits of factoring receivables and getting paid upfront for work that has been completed. Many of those will quickly see how they can use their advances to take on more customers, expand their business lines, or purchase more equipment. Factoring is the choice of many businesses ready to grow their company and increase their profitability.
To learn more about factoring, get started today by speaking to a friendly expert at Interstate Capital!