Benefits of Accounts Receivable Factoring

24-Mar-2011 As a business owner looking to grow your business, you know the challenge of obtaining capital to finance expansion or to meet shortages in cash flow. When a start-up, high growth businesses or a business in transition is unable to secure bank financing, such as through loans and lines of credit, some business owners turn to accounts receivable factoring. This type of invoice factoring has been a mainstay for years, which large companies often utilize as a credit management tool. Today, receivables factoring has become increasingly popular for small businesses, who are looking for other ways to increase their cash flow and expand their business -- especially when they may be having difficulties (or may not want) to obtain funds through other means such as bank financing or venture capital. But what is accounts receivable factoring and is it right for your business?

Accounts receivable factoring, also referred to as accounts receivable financing or accounts receivable funding, is essentially a form of financing that involves factoring receivables for companies that are lacking in working capital. When factoring receivables, receivables or outstanding invoices are sold to a  or finance factoring company, who in turn assumes the task of collecting the receivable. The finance or factoring company provides quick money to your business in this transaction. Of course, the value assigned to the receivable depends on a number of things, such as the credit rating of the invoiced customer or age of the receivable. That is, typically a more current receivable or invoice will provide more cash than an aged receivable. Generally speaking, accounts receivables that are over 90 days will not typically be used in the receivables financing.

The benefits of accounts receivable factoring for credit management is noteworthy. First, outsourcing your accounts receivable collection to another company helps you to free up other valuable time and resources on more productive aspects of your business, such as selling products or services. Secondly, receivables management in this way helps a company to free up working capital that may be tied up in their inventory. Third, many businesses turn to receivables financing for quick financing. Receivables financing won't require elaborate business plans or tax statements in order to receive funding for cash flow needs or expansion. Fourth, factoring receivables helps to stabilize the cash flow of a company, especially one that is in a high growth cycle. Cash flow becomes more stabilized to help meet day-to-day operational funding requirements. Fifth, accounts receivable factoring helps a company avoid seeking outside funds from venture capitalist to meet their cash flow or growth needs. They don't have to give up a portion of their company's equity interest, which can be the case when obtaining funds through venture capital.

All-in-all, in a changing economy or in times of economic uncertainty, taking the accounts receivable factoring plunge can mean the difference between a company thriving and faltering.

To learn more please Contact Accutrac Capital, your Canadian source for Accounts Receivables Factoring.