It may seem like the process of obtaining funding for a business is set up specifically to be confusing, time-consuming and frustrating. This is particularly true if, as a business owner, you are trying to work with lenders such as banks and financial institutes for business loans or lines of credit.
There is an easier and more streamlined option available. This is the process of factoring of accounts receivables. This is not a loan nor a line of credit, so there is no need for a credit check on your company, making it much easier and much less stressful for the applicant.
What is Factoring?
The factoring of accounts receivables, more commonly known as factoring, involves a third-party (the factor) purchasing specific accounts receivables. As this is work, products or services already provided, the factor buying the invoice assumes the role of the back office.
The factor collects from your customers as per the terms of the invoice while you get up to 80% of the total in cash in just a few days. Then, upon closing of the account when your customer pays the factor, the factoring fees are deducted, and you are sent the residual balance.
The Steps
As a business, the first step in the factoring of accounts receivables is to submit an online application to the factor. This is less about your business and more about the invoices you wish to factor.
The factor then checks out the creditworthiness of your customers, typically in one business day. Then, you will submit the invoices and receive your funds wired to your business account in just a few business days.
At the end of the terms and the final payment from your customer to the factor, the residual amount will automatically transfer to your bank account. Simple, easy and very stress-free, factoring is a consideration for any business meeting the requirements of the factoring service.
