What Is Accounts Receivable Financing? Or Factoring?

What is Accounts Receivable Financing? Or Factoring?
Accounts receivable financing is when you turn your invoices into immediate working capital, rather than waiting 30 to 60 days for your client to pay you. You may need money to finance payroll, pay the real estate mortgage or to pay your debts early to qualify for a discount.

Your large clients will pay the Invoices owed to you but not in time for your immediate payroll or debts.

Getting a line of credit at the bank may take weeks, plus business has been slow in the past year, and you may be concerned about qualifying for a bank loan.

The Working Capital Solution
This is where accounts receivable financing or factoring can be extremely helpful. You borrow again your receivables, or do what is known as selling your receivables to a Lender who will pay you 80 to 90 percent of the total invoice amount. And when your client pays the Invoice, to the Lender, the Lender will take out the fees for the transaction (which are 100 percent tax deductible) and send you the balance of the monies.

The good thing about factoring or utilizing accounts receivable funding is, once the transaction is over with, you don’t owe any body anything. You will have created working capital for your company without incurring debt, and this is the sweetest part of accounts receivable financing.

What Are the Fees for Factoring?
The fees depend on the amount of the Invoices which are financed, the type of industry and the credit worthiness of your client (how long it will take them to pay the Invoice) Fees range from 1.5 to 3.5 percent and slightly more for commercial construction factoring and special industries where funding is slightly hard to get.

How much of the total invoice amount that you can get upfront depends on the credit worthiness of your client.

History of Factoring
Factoring has been around since the Egyptians, and was used by the pilgrims when they came to America. Factoring is more popular in Europe and is used more often by European companies.

Benefits of Factoring and Accounts Receivable Financing
The best benefit is creating immediate working capital, without incurring debt. In other words, a small business owner can actually finance his own growth without a bank loan. And this can be done usually with days. (Unless it is a government contract, then it takes a little longer)

Clients are the life line for any business, yet when they take 30, 60 or 90 days to pay. This can place a hardship on a small or even medium size business depending on the amount of the Invoices. Payroll continues regardless if the client has paid the Invoice or not. Accounts Receivable Financing enables a small business to be independent regardless of when the large corporations, federal government, state, city or utility company pays.

With some Lenders, factoring companies, they will take over the collection of your receivables and this by itself can save a company many man hours.

Eliminating Cash Flow Issues
If cash flow is a concern for your company, you owe it to yourself to investigate factoring or accounts receivable financing. Some Accounts Receivable brokers provide funding placement for government and corporate invoices. There is no fee for the placement of funding and usually helps the small business owner to become more efficient in finding and selecting an accounts receivable lender. Click here for help in finding a suitable Accounts Receivable Lender based on your location, industry and amount of Invoices.

Construction Factoring, Alternative to Construction Funding

According to the Construction Financial Management Association it takes some construction contractors an average of 60 days to collect on invoices.

And that’s not the half of it.  Many experienced, well run construction companies have to pass on certain jobs because they don’t have the resources to fund the project.  Getting a Line of Credit from your local bank has been difficult in the past couple years.

Factoring commercial construction loans is a simple solution to managing cash flow, meeting payroll, and paying bills on time.  Even when the General Contractor is not able or willing to pay construction invoices in a timely manner, sub-contractors can factor out their invoices for immediate working capital, without incurring debt. (Usually your credit is not an issue)  Short App - Six Questions

It take more than a minute to fund such a project, and any company who says they can do it over night, may be using questionable marketing tactics.   The best solution is to apply for commercial construction “before” you actually need it.  In fact, while you are in the process of bidding the job, is a good time to contact your Accounts Receivable Construction Lender.  They can run a credit check on the General Contractor or the Developer, and give you inside information which can be useful in bidding the contract.

An experienced Construction Accounts Receivable Specialist is one who can sort through the factoring companies, and come up with the best Lender for you, based on 1) type of construction project 2) amount of Invoices you will want to factor per month 3) your location 4) credit rating of the General Contractor when you are a sub-contractor.

Learn more, quick questions, no obligation, no fee for placement service.  Construction Factoring