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Factoring Trivia: Little Known Facts About Invoice Factoring

Accutrac Capital 15-Apr-2014 0 Comments Permalink

Invoice factoring, also known as freight bill factoring has been around for a very long time!

Invoice Factoring isn't a new financing product

what is invoice factoring - known factsIn fact, factoring can be tracked back as far as 4,000 years to Mesopotamia and later to the Romans who sold promissory notes at discounted prices. From the 14th to the 17th centuries, factoring was widely used in Europe in clothing, import/export and manufacturing industries. Factoring came to America with the Pilgrims around 1620.

If you think 60 days is a long time to wait to get paid, think about a cotton grower in the US selling product to England in the 1700s. First the cotton would need to make the long sea voyage to the English buyer; then payment would have to make the sea voyage back. These olden day factors acted as middlemen to take possession of the goods, provide cash advances to the producer, finance the credit extended to the buyer and insure the credit strength of that buyer. In today's financing world, factors almost never take possession of goods sold, but offer various combinations of money advances and supportive services when advancing funds.

Invoice Factoring isn't a loan

Though accounts receivable factoring is a form of financing, it isn't a loan. It doesn't show up on your company's balance sheet as a debt and won't affect your credit rating. That's because factoring involves selling your accounts receivable invoices to a factoring company at a discount in exchange for immediate cash. You're simply receiving an advance on money that you've already earned, but faster than waiting to be paid by your customer. Also, it's not your business's creditworthiness that comes into play when qualifying for factoring. It's the creditworthiness of your customers.

Invoice Factoring isn't just for businesses in financial trouble

It's true that some businesses turn to factoring because their financial history makes it difficult to get traditional financing. However, lots of other types of businesses utilize factoring to create cash flow. They include:

  • high growth businesses that need cash flow to finance their growth.
  • businesses going through a transition
  • businesses that don't want to increase their debt for short-term financing needs
  • businesses rebounding from a tough financial year
  • businesses that must offer their customers extended payment terms to stay competitive, but want to create predictable and dependable cash flow

For more information about factoring your business's accounts receivable invoices, visit www.accutraccapital.com.

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