Accounts Receivable Factoring – The Wise Alternative That’s Protects You When You Need it Most

Few business owners even know about the option of accounts receivable factoring. Those that do get through the daily obstacles of being in business with much more ease.

Have you ever watched professional figure skating? Ever noticed how the pro’s just make it look so easy?

In a similar way, account receivable factoring makes financial crisis management of the everyday business owner look like child’s play.

Your Questions

Why should accounts receivable factoring be a part of my business financing strategy?

What are the advantages of account receivable factoring?

Are there any disadvantages?

Real answers

Why should accounts receivable factoring be a part of my business financing strategy?

We’re going to introduce you to the top 7 reasons why.

Are you in an industry where you are waiting 30 to 90 days or more before you receive payment on your claims or invoices?

If so, you know the importance of having a backup plan for how you will survive when slow payments become slower and slower and slower.

What is your backup plan? Would it be wise to wait until you’re low on funds before securing financial support?

When confronted with a crisis, how does knowing you’ll have the financial backing to get through it make you feel?

Most of us agree that we should have a backup plan in place. Yet, the closest most have to backing in case of a financial squeeze is the money stowed away in the business and personal saving accounts. For extreme cases, we might have an insurance policy.

The importance of a backup plan is one of the main reasons you should consider small business factoring.

Other reasons include the benefits you enjoy when you do.

What are the advantages of account receivable factoring?

The most obvious benefit is having access to cash right now.

Have you ever heard of the concept of The Time Value of Money? The Time Value of Money says, “Money is more valuable today than it will be tomorrow.”

Here’s an example. Let’s say I handed you a $100 bill right now, and then took it back out of your hand.

You might be taken aback. Then, I say, “Changed my mind. Instead I want to give you a choice. You can receive

  • $95 now
  • or

  • A series of 10 monthly $10 payments for a total of $100 over time.”

Which option would you chose?

Likely you would want the $95 right now. Why? Because fundamentally you understand that $95 now is worth more than $100 over time.

This is really the primary benefit of business factoring.

Here are some other reasons why you should consider it as part of your business financing strategy.

You can get the cash very quick in comparison with traditional financing.

Our cash providers can interview, perform due diligence, approve you, and provide funding all within 30 days or less.

Once your relationship has been established, you could sell your invoices or claims as often as you like; with funding occurring within hours of your request.

In many ways, it acts like a line of credit without the monthly payments attached.

Here’s a side by side comparison of factoring and a business line of credit (LOC).

Features Business LOC Business Factoring
Secured Possibly NA the receivables are purchased
Unsecured Possibly NA the receivables are purchased
Recourse If secured Rarely
Personal Guarantee Required Yes No
Monthly Payment Required Yes No
Good Personal Credit Required Yes No
May Use Funds for Any Purpose Yes Yes
Speed of Receiving Funds Can take up to 90 days Fast
Cost Less expensive when low interest rate attached May or may not be more expensive

As you can see, it acts like a line of credit in that you can “borrow” what you need, when you need it, and use it for any purpose.

“Borrow” what you need when you need it.

We put borrow in quotes because factoring is not a business loan at all. Instead, it is the selling of an asset – the account receivables.

You decide how many invoices or claims you want to sell at one time. If you have a total of $2 Million in accounts receivables, you may decide you only want to factor $500,000, for example.

Remember, accounts receivable factoring allows you to be in control of your own cash flow.

Use it for any purpose.

Some finance products limit what you can use them for. For example, equipment loans, commercial property loans, or auto loans can only be used for the equipment, property, or car.

Instead, accounts receivable factoring is more like a line of credit. You’re free to use factored dollars for whatever you choose.

No Monthly Payments

The provider waits for the money to be collected from the client or payor instead of you. So, you are not obligated to pay any monthly payments. The only person who has anything to pay “back” is the original client or payor.

The cash providers are NOT concerned about your personal credit score.

Instead, their concern is with the credit of the client or payor. If your payor is the federal government by means of Medicare or Medicaid, for example, then your payor has great credit!

We’ve only scratched the surface of all of the benefit associated with accounts receivable factoring. It truly is the smart alternative to a business loan that also acts as financial backing when you need it the most.

To protect yourself and your business from the fears of a financial crisis, feel free to Contact Us today and a commercial finance specialist can help you get started.

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