Is Invoice Factoring Right for your Business?

Introduction to Invoice Factoring 

Invoice factoring, also called accounts receivable finance, or accounts receivable factoring, is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount.  Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity.  Factoring is a financing option for young, undercapitalized businesses that have the profit margins to absorb the factor's fee.  Factoring is a flexible form of loan, which advances money to a company as it issues new invoices.  Factoring is a widely used financial product that transacts over $70 billion of volume each year in the United States alone, and is one of the most popular forms of financing in Europe.  Accounts factoring is one of the oldest and most powerful cash flow and management tools available to businesses today. It is not a loan and will not show up as debt on your company’s balance sheet.  Factoring is designed for businesses that want to improve their cash flow by not waiting 30, 45, 60 days for a customer to pay. 

Cash Flow

The biggest benefits of factoring are: Factoring invoices gives you predictable cash flow.  This increased cash flow allows you to take advantage of growth opportunities, early pay discounts, reduce debt or cover operating expenses.  If you are concerned with your ability to meet payrolls because of unpredictable cash flow you are a candidate.  If your business has seasonal peaks that create cash flow dilemmas, you are a candidate.  Factoring is a very simple tool that provides you with predictable cash flow.  Cash flow planning and control can become skewed due to uncertainty of payment dates.  It creates the needed control over your cash flow that translates into greater production, sales and profitability. 

Factoring Advance

Advanced funding is wired to your business bank account.  This can involve a very substantial payment being made right at the start, with most factors paying 70% to 90% through initial advance of the invoice amount followed by a small additional payment, through reserve release, once they collect the invoice.  Remember that the credit-worthiness of your customers will have an impact on the advance and discount rates coming from the factoring company.  For example if the invoice's value is $1,000 an advance rate of 80% equals $800.  The balance of the advance is called the "Reserve". 

Conclusion

Accounts factoring is a way to get immediate cash.  Factoring is a long established and mainstream financing option for businesses.  Invoice factoring is the time honored and increasingly utilized financial tool that speeds client cash flow and helps avoid the problems that slow-paying customers can create for fast-growing companies. It has become a financial tool used by growth oriented business to increase working capital.  Factoring is a fast, easy and flexible way to improve your cash flow and generate working capital for your company so you can achieve the success you are striving for.

Greg de Vries is the Managing Director and VP of Marketing for Business to Business Capital Corp. Please visit BTB Capital Corp to receive a no cost, no obligation proposal for factoring companies of all sizes and industries. They can be reached at (877) BTB-CORP.