Many companies find themselves strapped for cash due to slow-paying customers. To maintain positive cash flow, many companies have turned to factoring.  They do this by selling their invoices associated with their outstanding accounts receivables to companies that provide an advance against the outstanding receivables. The advancement is usually in the amount of 70 to 90% of the outstanding amount and based on the creditworthiness of the customer that is being billed. After the bill is paid, the factor then remits the remaining balance less the transaction fee.

The Benefits of  Using a Factor

Many companies have found it to be very beneficial to factor their invoices in that they can get their money a lot faster as opposed to waiting for 30 to 60 days before they receive a payment (which is the typical credit terms that are extended to most customers). With the use of a factoring company, businesses can have their money within 24 to 48 hours. 

Another great benefit is that while banks focus on the creditworthiness of business before providing a loan, factoring companies focus more on the financial soundness of the company’s customers.

So even if the company itself has seemingly shoddy credit, they can still benefit by using the credit of their customers.

Although there’s been some stigmatism towards companies that factor their invoices as a means to amend their cash flow issues, it’s now a multi-billion dollar business as it has come to the aid of many reputable businesses in the past. Industries such as construction, healthcare, trucking and more have relied on factoring to meet their cash flow needs.

Another benefit is that it does not require as much paperwork as with traditional banks. And because factoring companies first perform an assessment to determine the risks, most companies don’t mind paying the transaction fee. These firms also take care of all the credit checks, billing, and collections. The overall process makes it a win-win for everyone involved.

For more information about how to factor your accounts receivables to maintain positive cash flow, please contact Business Financing Corporative today.