Accounts Receivable Financing, or Factoring, is one of the primary financial products we offer which allows companies to immediately access the capital tied up in receivables for 30-60-90 days before receiving payment. A Factoring Credit Facility allows a business the flexibility to access capital based on their invoiced amount within 24 hours. The companies we assist with this type of financing typically have a limited bank line of credit, have experienced recent losses, are under-capitalized or simply do not qualify for a bank credit line.
Factoring is a widely used and accepted form of working capital cash flow that is a sensible and a profitable alternative to bank lines of credit, equity or subordinated debt.
If a bank line of credit is not a viable option for your company at this time, Factoring your accounts receivable is an interim solution for your cash flow requirements as you continue to grow your company. Funding your receivables allows a company the flexibility to meet payroll and overhead, buy additional product or inventory, and most importantly, continue to accept new business and grow. The lifeblood of almost every business is the availability of working capital cash flow. Without it, your business will soon grind to a halt.
How Factoring Works
Factoring is a relatively simple and widely used financial tool that benefits many growing companies selling a product or service on credit terms. A factoring company purchases your accounts receivable (gives you immediate cash for your selected invoices) so your company does not wait 30-60-90 days for payment from your customer. The purchase of your verifiable invoices is advanced to you within 24 hours after submission to the factoring company and sometimes on the same day. The factoring company not only acts as your financial resource, but also takes on a receivables management role and receives payment from your customer. The “Reserve”, or small percent of the invoice that was not advanced by the Factoring Company up front, is deposited into your account less the finance fee or “Discount” once your customer has paid the invoice.
In summary, the following is an example of how factoring might work for your company: you submit a $10,000 invoice for funding and receive an 85% advance on your invoice (advance amount is determined by your needs, industry and risk). Your account is credited $8500 by the factoring company with which you use to cover any number of business related expenses. Your customer remits payment via check or wire transfer to the factoring company for the invoiced amount of $10,000. The factoring company then returns the $1500 “Reserve” balance owed to you less a small finance fee or “Discount”, typically 0.5% to 3.0% dependent upon how long the invoice was outstanding or unpaid.
The ability to receive immediate capital for commercial invoices can accelerate cash flow for almost any company selling on credit terms to other businesses. Much of the business world operates on and expects to be granted credit terms. If you don’t offer credit terms, chances are your competitor or companies providing a similar good or service do. Unlike a bank line of credit, Factoring allows your company to make quick decisions and take advantage of immediate opportunities. Given that Factoring decisions are primarily based on the credit strength of the company you are selling to, the ability for your company to expand its Factoring Credit Facility in hours instead of weeks or months from a bank allows you to take advantage of opportunities swiftly and respond at the speed your industry requires.
Benefits of Factoring
An Accounts Receivable Factoring credit facility can most often be put in place for your company within 3-7 business days unlike a bank that can take weeks or months to determine a credit decision for your company. Here are some of the top benefits your company can take advantage of by setting up a Factoring Relationship with Beacon Business Capital:
- Fast Access to Working Capital – Once your Factoring account is established in a quick approval process, invoices submitted for funding are deposited into your account within 24 hours or often the same day of emailed submission.
- Expanded Credit – Credit approvals are determined by the financial strength and creditworthiness of your customer rather than a complex credit scoring process, your company’s financial position or personal assets. If you are selling or servicing companies with good credit, your ability to acquire immediate cash for accounts receivable can be virtually unlimited.
- Flexibility – Accounts Receivable Financing programs are tailored to fit your company’s particular needs. You decide which accounts you would like to fund for immediate cash flow and how often. You remain in complete control.
- Eliminates Stress and Anxiety – Eliminate the desperation of sorting mail looking for deposit checks to pay overhead and expenses. Sleep soundly knowing you can tap into your accounts receivable within 24 hours rather than waiting to be paid in 30-60-90 days. Accounts Receivable Funding is the solution to cash flow challenges for companies selling on credit terms.
- Debt-Free Funding – Accounts Receivable Financing or Factoring is NOT a loan and is therefore not carried on your balance sheet. It is simply a financial tool that accelerates access to funds which allows you to immediately leverage money against invoices for goods delivered or services rendered rather than waiting on extended credit term payments.
- Easy Qualification – Factoring can accommodate companies with seasonal or uneven sales patterns or start-up companies with no financial history. Almost any business can qualify for accounts receivable financing if it generates sales on open credit terms to customers with good credit. Most of our clients are seeking a solution to fund continued growth where recent or past earnings cannot justify a bank loan, a credit increase or may have been asked to exit the bank due to recent losses or any number of financial challenges.
- Credit Analysis – Be confident in the credit position and credit qualifications of the customers you serve. Making informed decisions before extending credit terms to new accounts can be costly and time consuming to research. Credit reviews are quickly performed by a Factoring Company to confirm the credit you need on each of your accounts without cost to your company. This service allows you to rest in the knowledge you are selling to creditworthy accounts and you will be paid.
- Accelerated Growth – The catch-22 of growing companies continues to be an ever-increasing accounts receivable balance that decreases cash on hand to use as operating capital or cash flow. The immediate availability of cash through Factoring Accounts Receivable solves this dilemma and allows any company to grow at an unrestricted pace with access to working capital all along the way.
- New Opportunities – You can now stop avoiding new business opportunities due to required credit terms. Factoring is the financial tool that allows you the freedom to accept new credit term opportunities at an accelerated pace because you will no longer be restricted by the limited cash flow caused by extended payments.
- Start-Ups Included – Accounts Receivable Financing or Factoring helps companies of all sizes and longevity with expediting operating capital to meet the daily cash flow requirements of running a business. New companies are often in dire need working capital if they are to take advantage of new opportunities accepted on credit terms that will quickly expand their business. Banks typically will not provide credit to new companies less than 2 years in business. Factoring is the solution that does not require a financial history to access the vital working capital required to run a business.
Are you ready to discuss a Factoring Credit Facility for your business? Call Beacon Business Capital at 713-828-9085 and share your needs with us. We’ll quickly determine if Factoring is right for your business.