Factoring Accounts Receivable: Detailed Introduction for Your Knowledge

For those who need a quick and simple definition of factoring accounts receivable or invoice factoring, here it is: “Invoice factoring is a method for businesses to raise funds by selling discounted invoices to a factoring company.”

Factoring typically includes credit control services and assists in the release of funds from a company’s debtor book. This page contains all of the information you need to know about invoice factoring.

As a small business owner, invoice factoring allows you to convert unpaid client bills into quick cash. This financing option is appropriate for business owners who have customers in other businesses. These customers do not always pay for goods or services right away, thus invoice factoring can assist business owners in keeping staff and other expenses paid. Once the basic concept is clear, let’s forward to know the benefits. 

 Accounts Receivable Factoring Benefits

• By providing instant working capital, invoice factoring can help bridge a financial gap caused by slow-paying clients.
• Improved cash flow: You can keep loyal customers on longer payment terms while increasing your cash flow to help your business grow.
• Simple approval: Because of a lack of collateral, poor personal credit, or limited operating history, invoice factoring can provide capital to businesses that would not otherwise be able to obtain it from other sources, such as a traditional bank. Factoring companies are typically only interested in the value of the invoices you want to factor in and your customers’ creditworthiness.
• Invoice factoring is an unsecured loan, which means you don’t have to put up any collateral, such as real estate or inventory, that the lender can seize if you don’t pay.
• Invoice factoring is an unsecured loan, so you do not have to put up any collateral such as real estate or inventory that can be seized by the lender.

How does invoice factoring works

Now when it is clear that what is invoice factoring and its advantages for businesses, the next thing is to understand its work procedure. Let’s dive deeper to know more. 

Payroll stress is relieved by invoice factoring, which provides funds to meet weekly, biweekly, or monthly payroll obligations. Is it time to restock your supplies? You won’t have to wait for your customers to pay before purchasing supplies or making payments to vendors. 

The factoring accounts receivable is applicable on the purchase of your unpaid invoices that are less than 30 days old from your accounts receivable. You complete the task, sell the invoice to a dedicated company and they promptly advance you up to 100% of the invoice amount and collect payment from your client.

That concludes our discussion. There will be no more invoices to file, no more waiting for clients to pay, and best of all, instant cash-in-hand invoice factoring will streamline your bookkeeping and ensure that you are paid on time, every time. In a nutshell, factoring accounts receivable aids with convenient receivables collection that further lowers down the factoring fee. Seek credible companies for assistance regarding consultation and operational assistance.