What is Accounts Receivable Factoring?
Accounts receivable factoring companies offer financial services that provide funding to businesses for working capital purposes.
It is also known as invoice factoring, invoice discounting, or accounts receivable financing.
It is also a flexible and simple lending alternative for your company to obtain working capital.
Factoring Accounts Receivable Can Increase Cash Flow
Accounts Receivable Factoring is an excellent alternative to a traditional business loan. This speedy and easy process turns your accounts receivable into immediate cash for your company. Charter Capital has earned a reputation as an accounts receivable financing company for assisting small businesses when other providers cannot, and we are committed to providing the financial means for entrepreneurs to realize their full potential.
Companies in a variety of industries have benefited from Charter Capital’s accounts receivable factoring, from trucking and freight services and manufacturing companies to staffing companies and security firms. When you decide to use our invoice factoring services, you are outsourcing both your credit and collections staff, which allows small business owners to free up staff and resources for more productive purposes. As a quick form of business finance, invoice factoring is becoming increasingly popular amongst B2B companies of various sizes in multiple industries.
What is The Accounts Receivable Financing Approval Process?
You can apply for accounts receivable financing even with a poor credit score. The invoice factoring company would look at the credit history of your customers and then determine if you qualify for AR financing. It is important to note that if the non-payment risk is too high, the financing application may be declined. Accounts receivable financing is one of the better financing options for small businesses since it allows them to receive funding for their business while waiting for their invoices to get paid. As soon as the invoice amount has been paid, the lender pays the company the remaining balance.
What Are The Costs or Fees When Factoring Receivables?
Accounts receivable factoring is an affordable alternative to traditional bank loans. Invoice factoring companies calculate their factoring rates based on a number of factors :
- The industry you are in
- Your customer’s creditworthiness
- How long it takes for your customers to pay
Average factoring costs fall between 1% and 5% all depending on the above-mentioned factors.
Benefits of Using an Accounts Receivable Factoring Company
- Immediate increase in working capital – Accounts Receivable Factoring releases the cash your company has tied up in accounts receivable and makes it available for paying expenses such as payroll or other business needs to grow your business.
- Predictable cash flow – Eliminate the burden of waiting for payments from customers. Instead of waiting 30, 60, 90 days or more, you can factor your invoices and get paid immediately.
- No new debt – Since this form of invoice financing is completely different than traditional bank financing and is not considered a loan, it does not appear on your books as debt. It appears on your balance sheet as more cash and fewer accounts receivable.
- Offer better credit terms – Offer your customers better payment terms without affecting your cash flow. When you are factoring accounts receivable, you receive funding directly to your bank account within 24 hours regardless of the terms you offer your customers.
- Go after big accounts – Offer credit terms demanded by large, slow-paying corporations without depleting your cash.
- Take advantage of supplier early-pay discounts – Most vendors offer discounts for early payment. With the predictable cash flow provided by receivables factoring, you can take advantage of early-pay discounts, improve your credit rating, and offset the cost of factoring…all at the same time.
- Spend more time building your business and less time managing your receivables – As experts in accounts receivable management and invoice financing, Charter Capital allows you to spend less time managing your receivables, and more time managing your business.
- Use of our complementary back office support – As a business owner, you are continuously looking for ways to save costs. Reduce your overhead costs associated with managing your accounts receivable and processing payments. We will handle that for you.
Reasons Most Businesses Fail; They Run Out Of Cash
Accounts Receivable Factoring Services can provide your business with a much-needed cash injection to pay bills or suppliers. Often, there is a difficult gap between when an invoice is generated and when it is paid that can be filled by recourse factoring.
Many businesses use asset based lending to boost growth. Businesses that have a good customer base but do not have cash to support the growth are good candidates for invoice factoring. The great thing in this situation is that you are leveraging the unpaid invoices that you already have so you can get your cash earlier – little risk and no new debt.
Finance Growth Without a Loan by Factoring Receivables
Small to mid-size businesses are continually faced with waiting 30 to 60 days to get paid on their invoices, which really puts a strain on their cash flow.
Where large companies can usually afford to wait it out, small and mid-size businesses can’t. This can have a serious affect on managements’ ability to pay the company bill or meet payroll. A cash flow shortfall can also affect the business’ ability to fulfill orders because the cash is tied up in unpaid invoices.
How can you get business cash without a traditional bank loan?
Accounts Receivable Factoring, also known as invoice factoring, is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring of accounts receivable is a valuable mechanism to turn your invoices into immediate cash, enabling you to fund your business operations. It is not very well known, but invoices from strong credit worthy commercial clients are excellent collateral, especially for factors. Most banks will not accept accounts receivable as collateral, but accounts receivable factoring companies are more than willing to provide you with financing based on them. In most cases, a factoring accounts receivable provider can provide funds when a commercial bank loan cannot.
Why use Account Receivable Factoring or Accounts Receivable Financing?
The reason many businesses make this move is to ensure the continuous flow of cash to the business without sacrificing equity or incurring debt. Essentially, businesses that use accounts receivable factoring companies are focusing on having most of the money now rather than all of it later. It takes time and effort to collect on an invoice, so when a company finances its accounts receivable, they are getting their money faster and without the hassle of the collection process.
In today’s struggling economy, freeing up working capital through factoring accounts receivable can prove to be vital. Access to immediate cash can be invested into new equipment, used to pay bills, or used toward payroll. Of course, the alternative is to chase the customer for the invoice payment and defer everything else while the money is tied up in the collection process.About Keith Mabe
Keith Mabe is Vice President of Operations at Charter Capital, a leading accounts receivable factoring company for small to mid-sized businesses. Headquartered in Houston, Texas, Charter Capital provides accounts receivable financing and asset-based lending for major industries including freight and transportation, consulting firms, service providers, staffing firms, distributors, manufacturers, and oil and gas service companies.