One of the growing financing options that most the business-to-business companies prefer is accounts receivable factoring. With this owner can get the payment to finish their work and even the delivered services in less possible time right after the customer clears the invoice. This third part form works as the lender that offers funding in two methods. Either Account Receivable Lender can lend against the receivable account of the business or by buying it and offer the cash depending on the invoices that are not paid.
If the business has been facing a cash flow issue and has trouble paying off the bills on time, then accounts receivable factoring is the right thing. Also, there are many reasons due to which businesses usually consider it as an alternate choice to get the funding.
No debt concerns:
Against asset-based lending, invoice factoring doesn’t create any kind of debt since it is not a loan. The factoring company would buy the open invoice and they offer the user a certain amount upfront for the same. The factoring company will then pay nearly 95% of the invoice value and thus take care of all collection and billing duties. Once the customer pays off the bill, the factor shall return the rest 10% to the user while deducting the factoring fee.
A complete control:
It is entirely the user’s choice to choose the number of invoices to factor. Rest all whatever the user does with the money being made from selling the receivable is their concern. This offers the user the ability to make a choice and flexibility of when the factor is needed. Even a single invoice can result in the factor but that is the user’s call entirely.
Quick funding for small businesses:
Often growing businesses usually face is the payment not being received on time. But factors can offer the cash for an invoice within 24hours once the business gets approved. A bank, however takes quite some time for the application approval and funds transferring. But this is not the case with accounts receivable factoring.
Credit history is not important:
The factoring company approves as per the creditworthiness of the customer since they shall be paying back the factor. If the user wants to improve the cash flow of the business, then the factoring company will not reject the requirements because of past financial concerns or due to bad credit history.
With the above perks of accounts receivable factoring, there is no doubt it is a wise decision to be opted for in a crucial time. With such a predictable working capital solution, it is possible to maintain the on-time payment cycle and thus be eligible for vendor early payment discounts. It is one fine platform to pace the flow of the cash quickly for the capital to be used for the services and goods that are usually delivered within 90 days from the time invoice is generated. To grow a business is a great choice, but still, it is better to get all cleared about before opting for it.