If you’re a CEO or CFO, your business might benefit from factoring in your accounts receivable department. This article explores the benefits of factoring through accounts receivable financing and how it can help your business.
Cash Advances from Factors
If you’ve never heard of factoring before, it is a way to sell your outstanding invoices to a third-party company. Because some businesses need their outstanding accounts cleared to pay overhead costs, having a third party factor might be an advantage. Factors can provide cash advances on outstanding invoices based on a percentage that might be owed.
Some factors release cash advances in about a day or two. Once the customer pays their outstanding balance, the factor deducts your cash advance, their fees and sends the remaining money to you.
Cash advances of this type can vary and may be based on the type of business, how many years you’ve been in business, credit history and other factors. Keep in mind, this kind of cash advance is not a loan but is actual money that you would receive from the customer if they paid their outstanding balance.
Why Factoring Works: Benefits
Small to mid-sized firms typically need to maintain steady cash flow streams to handle overhead and marginal costs. Factoring is beneficial because your back office isn’t tied up with these transactions, you can get access to the cash advance money you need right away and your receivables can scale with growth.
- Factoring gives you money as your accounts receivable gets larger, versus bank loans where you might have a set limit.
- Factoring isn’t a debt, and there’s no interest to pay.
- You are using the credit strength of your customers.
- With Momentum Capital Funding, you can receive your funds in as quickly as 24 hours, while banks might take several weeks to process loan applications.
Who Uses Factoring?
Factoring is not a new concept. It’s been around for hundreds of years. Businesses that utilize this feature can include small businesses to Fortune 500 companies. Factoring is commonly utilized in different industries to collect a few thousand dollars or even a few million dollars.
If you’re interested in factoring, reach out to a company that specializes in factoring and accounts receivable financing. Remember, factoring is not a loan like with traditional banks, so there is no debt associated with taking a cash advance against these accounts. It’s also not a get-rich-quick scheme, so you don’t have to worry about fraudulent activities to recoup the money you lost. Consider third-party factoring today so you can free up your resources and focus on growing your business.