The purchase of outstanding invoices is a particular strategy that benefits small businesses – as it does not force you into debt, and allows the factoring company to deal with your customer directly. Rather than waiting the traditional payment period of 30, 60, or even 90 days, accounts receivable factoring companies enable your business to get immediate access to the working capital you have already earned!
The Process of Factoring Accounts Receivable
The process of factoring receivables is a very comprehensible, simple procedure. Simply follow 5 steps to immediate cash flow:
The application process is made easy as it requires effortless paperwork. Simply send a list of your current customers, the invoices you wish to factor, and your company’s Articles of Incorporation along with a very brief application.
2. Get Approved
The factoring approval process typically takes between 3-5 days. Once your application has been approved, your company is eligible for 24hr funding on future receivables.
3. Sell Receivables
Factoring companies will purchase your receivables and advance you between 80-95% of the total invoice amount within 24 hours. The remaining amount will be held in a reserve account until the invoice is paid by your customer.
4. Continue Business
Factoring companies deal directly with your customer from here and is completely responsible for collecting the full invoice, so you can get back to work!
5. Receive Cash Reserve
Once the factoring company collects the full invoice from your debtor, they will return the reserve amount to you, minus a small factoring fee.
So why do businesses choose accounts receivable factoring?
Accounts receivable factoring offers a hassle-free business funding service that provides unique and flexible financial options. While banks often reject people due to poor credit history or lack of collateral, factoring companies do not require any of that. Due to the fact that factoring companies on advance funds that are tied up in outstanding receivables, the credit score of your customer holds much more significance. Furthermore, you are never required to take a loan or go into debt as the money you’re requesting is capital that you have earned, simply not yet received.