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Is Accounts Receivable Factoring Right for You?

Accounts receivable

Nowadays, many businesses face cash flow problems due to customers not paying invoices on time or too late, creating delays in everyday financial operations. This, in turn, can stall a business’s steady growth over time, even more so if the business needs to expand quickly. The working capital generated from invoicing is tied up in receivables, and businesses play the waiting game for the customer to pay the invoice in full. Therefore, many businesses are turning to accounts receivable factoring firms to help get the money they need faster than having to go through traditional bank loans. Under the right circumstances, accounts receivable factoring makes sense for struggling businesses. Continue reading to find out if it’s right for you.

What Is Account Receivable Factoring?

Accounts receivable or invoice factoring essentially means selling your accounts receivables and invoices to a factoring firm, which sends the business an advance right away. The factoring firm sends the customer the invoice and once it’s paid in full, the remaining percentage of the invoice is transferred back to the business, and the firm deducts a factoring fee.

How It Works

The process is relatively simple. For example, if you and the factoring firm agree on terms of a 20% interest rate, and the invoice is for $10,000, you will receive and advance of $8000. The remaining $2000 is held in escrow until the invoice is paid in full. The factoring fees depend upon how fast the invoice is paid in full.


Is It Right for You?

It’s important to remember that accounts receivable factoring is not necessarily easy money, and you have to pay attention to where your business currently stands financially. If not, you could suffer even more cash flow problems. If you need to invest money into expanding your business quickly, accounts receivable factoring is ideal. However, this kind of factoring should be sought out as more of a short-term commitment. This is because over time, the interest rate for all the invoices you send to the firm can accumulate, affecting cash flow and credit scores.

Accounts receivable factoring is simple, but you must first analyze just how much your business needs the services of a factoring broker Green Bay, WI, before making a decision. Consult with the professionals to find if it’s a right fit for you. If not, it might be better to seek other financing alternatives for your cash flow. For more short-term cash flow needs, accounts receivable factoring, under the right financial conditions, is the best option for rapid expansion of your business.