Accounts receivable financing is a great funding solution for small businesses that need more funding that isn’t available from traditional lenders. There are many small businesses that need more cash flow to help periodic demands, growth, business opportunities, or solve a short-term cash requirement. Accounts receivable financing offers flexible and instant cash to provide your small business the possibility to grow, reform, take advantage of supplier discounts, recruit more staff, or maybe to fund payroll.
With accounts receivable factoring program, you have the chance to get access to cash without having to give up equity to your business. It is less restrictive and costly as compared to equity financing. This type of financing can increase or decrease depending on your existing business extent and its requirements. Additionally it helps you to gain administrative assistance to manage your receivables without additional workers, and provides you access to cash when you ask for it.
How Accounts Receivable Financing Works
When you invoice your customer for products or services finished you provide the accounts receivable lender with a copy of the invoice and supporting paperwork. Factoring firm may then advance up to 90% of the eligible invoice to you, normally within one day. The factoring firm team follows up to help ensure that your customer pays as per the term of your invoice. As soon as the factoring company receive payment from your customer, they will release the remaining 10% of funding to you.
Accounts receivable funding process will free up valuable time and allow you what you do best, service your customers and generate new business. Receivables management is validated to shorten payment turnaround time, which in turn, guarantees cash flow for your small business and decreases interest cost. It additionally enables improved communication with your customers in a positive and expert way, consequently allowing you to stay on top of damaged items, misplaced shipments, disputed or misplaced invoices, or keeping payments up-to-date.
How Factoring Accounts Receivable Can Benefits You?
- Fill the cash flow gaps that would typically arise between invoicing a customer for products or services sold and when you actually get payments.
- Outsource accounts receivable processing and collection management.
- Support growth, business opportunities and seasonal demands.
- Grow your small business, restructure, take advantage of supplier discounts, hire more workers, or fund payroll.
- Fewer restrictions and less expensive as compared to equity financing.
- Move the risk of default to the factoring firm.
Some Frequently Asked Questions about Accounts Receivable Factoring
What is Accounts Receivable Financing?
It is a way of funding that is not available through traditional lenders. Accounts receivable financing, factoring, or funding is the sale of invoices at a discount in exchange for immediate cash.
What are different names for accounts Receivable Financing?
It is every so often referred to as invoice financing or ledgered line of credit. Accounts receivable financing is also called funding or factoring.
How much time it takes to get funding?
If you are an established customer, it normally takes a couple of hours to 2 days after invoices are submitted and proven for you to get funding.
In case you are a new applicant, it takes almost a week to establish you as customer that is quicker than traditional funding.
What are the process steps for A/R Financing?
- Setting up account
- Arranging your receivables
- Confirming your receivables
- Payments and settlement
What to consider before setting up an account?
Examining the value of customers’ credit, your accounts receivable aging report, and whether your business taxes are up-to-date. It also include background checks and evaluations on parties and owners of your small business.
How can I arrange my receivables?
Pick and submit the customer’s invoices or receivables you want to sell along with related files, accounts schedule, or other documented request for funding. More recent invoices are typically more valued as compared to the older invoices.
How invoices are verified?
Upon receiving invoices and receivables, the factoring firm confirms them with the customer to make certain that the invoice amounts are accurate, there are no counterbalances, and they may be due within the permissible terms.
What occurs during financing?
The factoring firm estimates the amount advance and deposits the funds in to your business bank account. Usually the advance amount is a percentage of the funded invoice, which varies industry by industry.
How factoring firm does collect payments?
Your customer sends payments to the factoring firm that it allows to process payments in your name. You can also repay it electronically and the funds are deposited into a bank account.
What is included in the factoring settlement?
As soon as the funds are received, the invoices are marked as paid and you receive a refund for the remaining 10% of the invoice amount excluding discounts and other related costs.
How much factoring cost?
The cost vary depending on some factors which include, amount, the size of invoice, and last but not least your customers. Normally the costs and fees are not higher than those that a credit card company does charge.
Are the factoring fees deductible?
Yes absolutely the factoring fees are deductible under business expense.
Do I need to finance all or some of my invoices?
You don’t need to finance all of your invoices. You can only finance some of the invoices that you want to factor. However, in case you have lots of invoices from the same customer, then you can factor all invoices.
Will factoring the invoices hurt my rapport with the customers?
Basically it will help you to make even more strong rapport with your customers. Factoring firms frequently heard if a customer is discontented with your services or products or is facing some sort of financial problems. Moreover, factoring process can optimize your cash flow.
After factoring, can I still borrow from other sources?
You are free to borrow from other sources. With factoring arrangement, your equipment, inventory and other property aren’t encumbered by the factoring process.