The Truth About Account Receivable Factoring

Before choosing to do account receivable factoring, it’s important to know of the benefits and the limitations.

We explain some of the benefits of factoring accounts receivables here. But what about any limitations? Here’s …

Your Questions

Are there any limitations to business factoring?

How can I overcome any limitations associated with account receivable factoring?

Real Answers

Are there any limitations to account receivable factoring?

Yes. In fact no one financial product is a cure all. So, we’ll identify the most common limitations and empower you with the knowledge you need to overcome them.

Limitation #1

It will take at least three to four weeks to complete the initial due diligence process.

How to overcome it?

It really helps to think of factoring like a line of credit.

You apply for the loan and the lender does their due diligence. The entire process can take as few as 15 days and as much as 90 days or more depending on the type of credit line.

Even though it can take up to 90 days or more to secure, business owners continue to apply for business lines of credit. Why? Because they recognize that once approved…

  • They don’t have to re-apply for the loan every time they need money. They only go through the due diligence process once.

  • They’ll have access to their funds as soon as and as often as they need it.

  • The money is available to use on whatever they choose .

Account receivable factoring works exactly like that.

Once you have an established relationship with our cash provider, you can secure funds within an hour of your request.

Also, with a line of credit, you decide how much of your credit limit you’ll use.

Similarly, with business factoring, you’re in the driver’s seat. You decide to sell as few or as many as you want to get to the dollar amount that you need.

Limitation #2

Some might be in a situation where they need money fast. So fast, that they don’t have the time to wait out the due diligence process. The urgency is just too great.

If you’re in this situation, you may feel: “It’s not worth the hassle because by the time I get the money, I’ll no longer be in this emergency situation.“

How to overcome it?

Here’s one thing we should realize about emergency situations: If it happened once, it will likely happen again.

If you’ve never been through a crunch due to receiving payments too slowly, just look around at your competitors.

Likely, they have dealt with periods of slow payments. And you can rest assured that if it happened to someone else in your industry, it could happen to you.

So, instead of passing up on your opportunity to do account receivable factoring, consider moving forward with the process anyway.

That way, you’ll be prepared to factor instead of dealing with crisis management when an emergency arises.

Depending on how fast you provide the documents requested by our cash provider, you may complete the process sooner than you think.

Limitation #3

When comparing the annual percentage rate (APR), factoring might be the more expensive option.

How to overcome it?

The best way to overcome this potential limitation is to manage your financing in the most cost efficient way for your particular business.

Some business lines of credit come with a high interest rate that would trump the cost of business factoring any day.

Also, some cash providers have such low discount rates that they might be neck and neck with, or even more competitive than a business line of credit.

It really depends on what you qualify for.

The best way to manage your financing is to choose the cheapest option first.

For example, if you do qualify for a business line of credit with a competitive low interest rate, use that money first.

Then, if you need more than is available on your line of credit, you can choose to sell some of your receivables. Remember, unlike your line of credit, whatever you sell in account receivables has no accompanying monthly payment.

In this way, you’ll maximize your ability to leverage your assets without increasing your liabilities.

It would also help to know how to minimize the cost of factoring.

To learn more specifics about how much account receivable factoring costs and how to get the cheapest pricing, feel free to Contact Us and a business finance specialist will be glad to help you.

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