Receivables Factoring – How To Finance Your Business Using Your Invoices as Collateral

Angel investors and venture capitalists, although more generous than banks, only provide capital if you are willing to give them an ownership stake in your company.

Usually a big one too.

Banks don’t demand an ownership stake. Instead, they will only lend you money if your company can show a three-year track record of profitability and if your personal credit record is spotless.

But, what if you don’t want to give up ownership and if you don’t meet banking requirements?

There is an option that is growing in popularity – and it provides you with easy to obtain financing.

It’s called accounts receivable factoring.

Factoring is an ideal tool for companies whose biggest challenge is that they cannot afford to wait 30 to 60 days to get paid by customers.

By factoring your a/r, you can get paid in as little as two days.

This helps business owners to easily meet ongoing obligations such as payroll and rent, and allows them to grow the business.

In effect it eliminates the uncertainty of when you’ll be paid and allows you to streamline your cash flow.

Receivables factoring is very different than a business loan or line of credit.

Rather than focusing on physical collateral (real estate, equipment, etc.) like banks do, factoring companies focus on your invoices.

Are they from good credit worthy clients? Do they pay reliably on 30, 60 or 90 days? If they do, you have a good change of qualifying for invoice factoring.

  • Accounts receivable factoring is very easy to implement and works as follows:
  • Your company delivers the goods or services to the client
  • You invoice your client and send a copy of the invoice to the factoring company
  • The factoring company advances you between 70% and 90% of the invoice as the first installment
  • Once the invoice is actually paid, the factoring company advances you the remaining 10% to 30% as a second installmentFree Web Content, less a small fee.

Factoring financing is a great alternative to bank financing and venture capital that is easily available to small and medium sized businesses.

What is Business Finance?

Finance is considered as Life Blood for any Business Organization. It is required for day to day operation of any business.

History of Business Finance

Business Finance History dates back to ancient times.

Finance is derived from French Language and it was adopted by English-speaking communities in the 18th century.