Accounts Receivables Factoring

Accounts receivables factoring is a business financing tool that taps into the capital held in outstanding invoices. With accounts receivables factoring, a business sells its invoices to a factoring company at a discount that usually ranges from 70-90% of the total value and in return gets an immediate cash advance.

The factoring company on the other hand, assumes responsibility for collecting the outstanding receivables from your customers. After charging a small fee, the factoring company then returns the remaining balance as it receives the payment from these outstanding bills of sale.

To see if accounts receivables factoring would be appropriate for your business, here are some of its pros and cons:

Pros

  • Quick approval process with few requirements

  • Businesses with bad credit or poor cash flow may still be eligible for financing since funding is dependent on customer credit

  • The factoring company assumes responsibility for collecting the outstanding receivables

  • Suitable for newly formed businesses and businesses with either bad credit or a poor sales history

Cons

  • Need enough a significant amount of outstanding receivables

  • The factoring company will be dealing with your customers instead of your business; this may compromise your customer relationships