What is Factoring?

What is Factoring?

Accounts receivable factoring (invoice factoring) is the selling of your receivables (invoices) for cash now rather than waiting 30-90 days or more for your customers to pay you. Factoring is a great and relatively inexpensive way to improve your cash flow and get the working capital your business needs.

SunState Consulting provides assistance for companies in their search to factor receivables. We have found that equity financing is harder to find and once found it takes longer to consummate than debt financing. It has been our experience that some companies, especially start-up companies, have been turned down by banks because of the loan underwriting criteria. Many businesses have not considered accounts receivable factoring when looking for financing, possibly because they do not understand it.

Conventional borrowing increases a business’ expenses and normally requires additional collateral. In the case of factoring, instead of analyzing a business’ financial statements, the business is evaluated on the strength of its accounts receivable. If the business has a product or service that it provides to a credit-worthy customer, then the business is a candidate for factoring. A typical advance is anywhere from 80% to as high as 95%, depending on the industry and volume of business. Factoring does not create debt or require additional collateral. It is very simple to use. Cash can be obtained for invoices normally in 24 hours or less, and as often as the business needs.

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