Factoring Accounts Receivables and Invoice Factoring by Financial Services Firms in the U.S.
Invoice Factoring companies offer businesses the access to the funding, cash flow, and working capital to support business growth, and so that they can capitalize on the many opportunities that are available to them. Purchase order financing offers increased cash flow and working capital as well.
Sometimes small businesses reject opportunities that require working capital and cash flow beyond their means. In many cases, businesses discover that they are not paid upon immediately upon delivery of products or services. Most contract terms demand that the supplier provide 30 to 60 day terms and this can cause a funding shortfall in continuing day to day business operations.
Purchase order financing is another financial strategy to increase cash flow and working capital.
What is Invoice Factoring as related to Business Lending?
Accounts receivable factoring is the sale of part or all of your company's accounts receivable. When invoice factoring companies provide financing through accounts receivable factoring, they essentially pay for your invoices as soon as your firm issues them. A small discount of the invoice amount is taken in payment by the accounts receivables management firm. They also provide accounts receivable management services by collecting the debt directly, as well as monitoring credit of your clients and providing aging reports.
Invoice factoring companies use your accounts receivable as loan collateral because you are selling receivables to a commercial factor, at a discount. This is a "self liquating asset" to the invoice factoring company. In contrast, banks loan money based on the borrower's creditworthiness, or assets based loans leverage from real estate owned by the borrower. To a business financial factoring firm (or factor), in contrast, the creditworthiness of your customers is what counts.
Who types of companies use Factoring?
Accounts receivables factoring constitutes about a third of all financing secured by American companies. This uses accounts receivable and inventory as collateral. Wholesalers, Distributors, Transportation, Staffing companies, Manufacturing and Business Services are some of the more common industries.
The factoring receivables industry is quite large, with over $200 billion factored in 2001, and has been used as a business financial service by multi-billion dollar corporations for many years. In recent years, this financing service been effectively used by small and medium sized business as an alternative to traditional bank loans.
How do invoice factoring companies increase your funding?
If your company has a large amount owed in accounts receivable, but your customers are paying too slowly, despite the penalties for late payment. You can sell your not-past-due accounts receivable to an invoice factoring company in order to increase funding and cash flow.
Financial Services somewhat related to factoring include: Purchase Order Funding
Is invoice factoring and accounts receivables management right for your company?
Traditionally, this is the right solution if emerging company with sales, but are not bankable yet, or if you are in hyper-growth mode where a bank loan will not be able to adequately support your accelerated growth rate.
Selecting an invoice factoring company - Decision criteria Part I
Selecting a factoring accounts receivables company - Decision criteria Part II
Selecting an factoring company - Decision criteria Part III
If you have an interest in further information regarding invoice factoring and accounts receivables management, contact Capital Funding Solutions, Inc.
www.finance-factoring.com
