What is Accounts Receivable Factoring (Factoring Accounts Receivables)?
As anybody who owns a business will know all too well, seeking loan approvals from banks and other financial authorities can be a nightmarishly slow process. It involves a great deal of paperwork and costly application fees can mount up quicker than expected.
The good news is that Capital Funding Solutions has a way to make the lending process simple again. With our accounts receivable factoring service, you can transform credit worthy invoices into accessible capital in no time. Plus, we work with businesses in Florida, Texas, New York, Georgia, Michigan, Virginia, and a host of other locations.
Understanding the Basics of Factoring
If you are considering factoring your accounts receivable as a financing option, it is important to understand the true definition of the term. A lot of companies end up with the wrong type of funding, because they do not understand their own needs, so the little details do count.
Take the following scenario. There are two businesses. The first (B1) provides goods to the second (B2). Then, B1 invoices B2 for these goods. The role of a factoring agent or firm is to purchase this invoice from B1 at a discounted rate.
The factoring agent or firm pays off the invoice and B1 has made a profit without having to wait for the payment from B2 to be processed and submitted. B2 then pays for the invoice by giving the factoring agent the full sum. As the agent only paid a part of this original sum, it also makes a profit.
In essence, the factoring company serves as an invoicing ‘middle man,’ a holding point for the payment.If the system works and all three parties operate in the required manner, everybody gets what they need out of the arrangement. B1 and the factoring agent both make a profit and B2 receives its goods. However, things can get complicated if B2 does not pay off its debt in full, in a timely manner.
Recourse versus Non-Recourse Lending
The difference between recourse and non-recourse factoring can be tricky to understand at first. However, if you remove the jargon, the situation becomes much simpler. For example, factoring with recourse states that if B2 does not pay, B1 must then reimburse the factoring agent the full sum of the invoice.
The same rules apply to non-resource factoring. The only difference is that B1 does not have to reimburse the factoring agent if it is discovered that B2 genuinely cannot pay off its debt. This is the case is B2 is considered insolvent. It does not necessarily have to have declared bankruptcy for this to happen.
Choosing Factoring Accounts Receivables
There are a number of reasons why factoring accounts receivables can be a valuable option for a business. For one thing, it means that there are no delays. If your company operates within tight profit margins and relies on timely payments, this service can minimize risk and keep things running smoothly.
It may be worth considering if your business regularly experiences problems with cash flows while waiting for large invoices to be submitted.
Factoring Accounts Receivables in Florida, Texas, New York, Georgia, Michigan, Virginia…