Why would a company sell or factor its receivables?
- Why would a company sell or factor its receivables?
- What is receivable factoring?
- Benefits of A/R factoring include:
- What is the factoring of your accounts receivable?
- What are the two types of accounts receivable factoring?
- Why would a company factor its accounts receivable?
- Reasons you would sell or factor invoices:
- Is factoring receivables a good idea?
- What is the effect of factoring business accounts receivable?
- How much does it cost to factor receivables?
- Accounts Receivable Factoring, or A/R Funding at Bankers Factoring
What is receivable factoring?
Accounts Receivable (A/R) Factoring, or A/R Funding, involves selling your open, unpaid invoices at a discount. Bankers Factoring, a factoring company, purchases your invoices and assumes credit risk and collections effort on your invoices. Over 29% of businesses fail from a lack of funding – receivable factoring provides the financing your business needs in times of growth, change, and uncertainty.
We advance you 80 to 93% of your invoice value within days of completing your online funding application. Your business receives fast funding that you receive on the same day of your account setup. Suppose you are struggling to secure financing because of bad credit. In that case, receivable factoring solves your cash flow issues.
Business owners can focus on growth, expansion, and business development with the Best Receivable Factoring Company. Our non-recourse factoring program elevates your credit profile with bad debt protection.
You can read our article on what is factoring receivables.
Benefits of A/R factoring include:
- Accessible working capital for startups, bank turndowns, and underserved businesses
- Fast funding for your business within five days
- Cheaper upfront than Credit Insurance
- Eliminate long receivable cycles – establishing more cash flow
- Non-recourse factoring exclusive bad debt protection program
- Flexible financing lines that grow with your business
What is the factoring of your accounts receivable?
Receivable factoring is a form of financing that involves selling accounts receivable invoices at a discount. With this type of financing, your business sells invoices to Bankers Factoring (third party), who then pays you – bypassing the wait for customer payment. The funds from these sales are often deposited directly into your bank account within 24 hours or less.
Related article: A Comprehensive Guide to Factoring Invoices
What are the two types of accounts receivable factoring?
There are two types of accounts receivable factoring: recourse and non-recourse factoring. Your style of factoring agreement has a significant impact on your risk exposure. In recourse factoring, your business is responsible for bad debt expenses. If your customer fails to make payment, the factoring company can seek relief through your business assets.
Without recourse factoring is a better solution to reduce your bad debt risk. In non-recourse factoring, Bankers Factoring takes on the credit risk – providing you with bad debt protection. You can enjoy your cash flow with no strings attached.
Related article: Understanding Non-Recourse Factoring
Why would a company factor its accounts receivable?
The business gets paid immediately at a slight discount. The discount is called a factoring fee, starting at .9% to 1.6% per 30 days. Factoring can resolve cash flow issues if your business outlays capital to produce sales. Fast funding and immediate cash make selling invoices a convenient financing solution.
Reasons you would sell or factor invoices:
- Insert capital financing into your business
- A reliable funding source for payroll financing
- Working capital to grow your business through organic and acquisition growth
- Acquire new customers
- You face cash flow shortages from extending customers’ credit payment terms.
- You are a startup that cannot receive bank funding
- Financially distressed business owners: bankruptcy, IRS back taxes, bad credit, no cash reserves
- Seasonal business cycles with sudden spikes and dips in sales
- Your business has a long operating cycle with deep initial outlays
Related article: Why Sell your Accounts Receivable?
Is factoring receivables a good idea?
If you’re a small business owner, factoring invoices can be a financial lifesaver. If you have high credit card debt or too many outstanding invoices, factoring your receivables can help get your business back on its feet.
Many businesses are turning to receivable factoring as an integral part of their financial strategy. Only 48% of small businesses receive the funding they seek (Fundera). Factoring injects a reliable source of capital into your business, especially in times of short notice.
Receivable Factoring offers several benefits, such as:
- An instant cash injection when you need it most (i.e., during downturns)
- A new source of financing for companies who may not qualify for loans from banks
- Your staff receives weekly payroll – payroll funding financing
- Non-recourse factoring provides bad debt protection
Related article: The Pros and Cons of Factoring A/R
What is the effect of factoring business accounts receivable?
Factoring positively affects the cash flow of your business and your ability to pay bills on time. It also gives you the cash flow to prepare for economic downturns and vulnerabilities. As you convert your A/R into cash, your business can operate at a higher level of sales growth.
Factoring can help you secure a loan or line of credit later as you strengthen your balance sheet.
Factoring allows you to manage your business by:
- Managing your capital allocation
- Investing in assets
- Growing sales
- Increasing staff
- Enter new markets
- New product development
- Controlling cash flow more predictably
How much does it cost to factor receivables?
Factoring fees are calculated as a percentage of the invoice amount per 30 days. For example, you factor $100,000 invoices with a 1% factoring rate per 30 days. Bankers Factoring would receive $1,000 in factoring, and you would receive $99,000 in funding.
Your factoring rate and other crucial finance conditions are located in the factoring agreement. Factoring costs include discount rates and additional administrative, processing, or transfer fees.
Related article: How Much Do Factoring Companies Charge?
Accounts Receivable Factoring, or A/R Funding at Bankers Factoring
Bankers Factoring, the Best Non-recourse Factoring Company, assumes risk when buying your receivables. Our invoice funding process allows you to receive fast cash in exchange for your A/R invoices. We rely on the creditworthiness of your customers to provide you with the working capital you need.
- Get paid faster
- Stop tracking down payments and working on collections
- No more wondering when your customers will pay
- Have access to free cash flow and grow your business
- A total A/R management solution