The Simple Guide to Accounts Receivable
For businesses that have never tried alternative forms of financing before, things like Accounts Receivable Factoring can sound a little scary at first. Fortunately, Capital Funding Solutions is here to make the process as easy as possible, so that you can depend on fast, reliable capital.
Every year, we help thousands of businesses in Florida, Texas, New York, Georgia, Michigan, Virginia, and beyond to get their hands on cash from invoices and goods sold. This handy guide will tell you everything that you need to know.
Factoring in Simple Terms
With this service, a factoring agent steps in as the third party between a company that sells goods and a company that buys these goods. Its purpose is to shorten the length of time that the vendor (Company A) has to wait for the buyer (Company B) to pay for the goods that it purchases.
It does not imply that Company B is unreliable in any way (this can happen, but more on that later). All it means is that Company A can have its cash almost instantly and Company B can take the time that it needs to properly process the payment. Both companies are now happy.
So, the factoring agent or firm pays Company A the money that it is owed by Company B. It takes a small percentage off the invoice sum; that is how it makes a profit. It then waits for Company B to return the sum in full (the original invoice price).
The Lending Terms of Factoring
The exact terms of a factoring agreement will depend entirely on the arrangement made with the agent or ‘middleman.’ However, most pride themselves on being able to pay Company A the invoice sum within twenty-four hours.
If you are considering Account Receivables Factoring, you are advised to opt for a factoring firm that can guarantee rapid payment. Otherwise, the advantages of using this process will be lost. The advance rate will again differ from firm to firm, so make sure that you pick a rate that you are satisfied with.
The Right Candidates for Factoring
Accounts receivablefactoring can be particularly useful for small businesses and young companies that are operating within quite tight profit margins.
The problem with being a vendor is that being owed money is not the same as being able to access it. You might be a young company with a great sales record, but the level of risk remains high if these sales are still being processed.
It is also important to remember that factoring is not a loan. The capital paid by the factoring agent is yours to have. It is a payment for goods or services that you have already sold. Essentially, it is just a clever way to skip the administrative frustrations of being a supplier.