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Must Knows For Business Owners Before Factoring Receivables

Factoring receivables is a great way for companies to quickly gain access to money that is owed to them by their customers. The pool of money they’re tapping into is from invoices sent out, and not yet paid. Their customers’ due dates are simply 30, 60, or 90 days in the future, which can be a long time to wait for companies in need of cash.

By taking advantage of factoring receivables, entrepreneurs can inject financial lifeblood into their operations in a rapid and continual manner. Before an owner takes advantage of this opportunity, though, he or she must know some specific details.

Terms of Contract

A business owner should closely review the specific terms in his or her proposal letter and contract. Some contractual language allows for flexible terms, while others are more rigid requiring minimum factored volumes. Some plans renew automatically unless a 90 day notice is given, while others must be reinitiated through mutual agreement at the end of each term. The length of the contract should be investigated upfront; it may be 6 months, a year, or longer.

Recourse vs. Non-Recourse

 Before final arrangements are made between a cash-strapped business and a factoring company like Eagle Business Credit, recourse vs. non-recourse options should be discussed. Recourse options mean that the entrepreneur is responsible for paying back the cash if his or her customers default on their debts. Although this option is less expensive upfront and can mean a higher amount of funds advanced, there is more risk involved for the business owner and they need to weigh up the choices before making a final decision.

Quicker Route to Obtain Funding

In the early days of a startup or when cash is tight in a well-established organization, getting a traditional bank loan can be a challenging and lengthy process. By factoring receivables, a company can generate financial inflow rapidly. Of course, there will still be an application to complete, but the process is more streamlined with less emphasis on the credit of the company applying for the facility or the business owner and more focus on the credit of the customers they sell to.

Allows for Growth

 The most important thing to know about factoring receivables is that it can enable a business to grow because of a more constant stream of money. By accessing money that is owed a bit earlier, an organization can flourish. This practice can be a powerful tool in an entrepreneur’s financial toolbox.