Accounts Receivable Factoring (also known as Accounts Receivable Financing) is the process of assigning your current accounts receivables at a discount to a factoring company, providing a source of quick cash to your business.

It’s a very simple transaction in which you trade an invoice from your receivables for actual cash. Accounts Receivable Factoring does not generate any debt as the factoring process does not generate a loan. Instead, it is a cash flow tool for your company to meet its current and future payment obligations in a timely and secure manner.

 

Benefits of Accounts Receivable Factoring:

  • Allows companies to extend longer payment terms to customers in industries with payment terms longer than usual.
  • Frees up working capital especially when it’s tied up in inventory.
  • Provides a quick form of financing in which tax statements or other financial documents are not often required.
  • Provides flexibility and can be applied to one customer, a small group of customers, or all customers.
  • Can be applied to international as well as domestic customers.

 

How do you know if your company needs its Accounts Receivables factored:

  • Your company is always having cash flow problems because you need to meet payroll and other expenses on a weekly or monthly basis, but also need to extend payment terms to your customers for over 30, 60, and even 90 days.
  • Your present bank is restricting its line of working capital to your company and you just don’t know where to obtain additional funds.
  • You are trailing the competition because you refuse to offer extended terms to customers in certain locations or industries.
  • You see your company growing at a much faster rate if the gaps in your cash flow could be finally overcome.
  • Customer relationships are sometimes uncomfortable because your customer keeps insisting on you extending the payment terms but you just keep hesitating.
  • Your balance sheet reflects a slower than usual accounts receivable turnover.

 

If any of the above situations describes your company, you need Accounts Receivables Factoring.

 

Stellar Risk Management Services, Inc. is an independent agent for several factoring companies. Please contact us by our online inquiry form, or by phone. We will be pleased to discuss this very useful credit risk management tool with you.

 

» Frequently Asked Accounts Receivable Factoring Questions