The Real Benefits Of Factoring Accounts Receivables

Posted By : Aubrey Mead , on Nov, 2016

 

A predictable, steady cash flow is key to any business. Choosing factoring accounts receivables as a method of providing that steady cash flow without the need for a business loan is an option any small to large business should consider.

Factoring allows a business to sell outstanding invoices to a specialized company that is called a factor. The factor then manages those accounts, immediately providing a lump sum of funds based on the value of the invoices to the business. The factor holds a pre-set percentage and then, once the customer has paid the invoice in full, the factor deducts the service fee and forwards any residual from the held amount to the company.

The benefits to your business in choosing the option of factoring accounts receivables include:

  • Immediate cash –factoring results in a deposit in your business account within just days. You don’t have to wait for 30, 60 or 90 plus days for your customers to pay.
  • Taking advantage of opportunities – with cash on hand, you are able to add to inventory, increase your employee base, plan and implement a new marketing campaign or to buy new equipment, all options to help grow your business immediately rather than in weeks or months.
  • No collections – as the factor takes over the management of the accounts, your staff is not tasked with the role of trying to collect from late paying customers. This frees your team up to work on the important job of finding new clients and customers.
  • No need for collateral – there is no collateral required as the outstanding invoices are sold to the factor. Additionally, as this is not a loan, there is no risk to the business or to the business owner and no repayment.

The practice of factoring accounts receivables is a very traditional option for businesses of any size to consider. Comparing the benefits to other financial options will provide a clear picture of the benefits.

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