Accounts Receivable Factoring

This process is beneficial because the business does not have to wait for the invoice cycle (typically 30-60 days) to be over before getting paid by their customers. Instead, they “sell” the accounts receivables to a bank or lending institution, which will in turn advance the business the amount owed on the invoices. It’s important to keep in mind that in most cases, you will not receive 100% of your invoice amount upfront. Most banks will give the business anywhere from 65-80% advanced. In addition, there is a fee, usually around 3-6%, but this amount is not owed until the invoice you have is paid by the customer.

A great benefit of accounts receivable factoring is that there are no “debts” per se, because you are simply getting money advanced on other monies already owed to you and your business by current customers. This method means you will have no set debts, and can stop the process at any time you wish. A loan differs because it has an interest rate, payment amounts each month, and a length of time that you must continue to pay until the loan is completely repaid. With accounts receivable factoring, you are simply getting money you need in advance so you can cover the overhead it takes to run a successful business. This is a good way for business owners to be able to take care of the needs they have today without worrying about the expenses they may incur tomorrow.