Account receivable factoring, also known as account receivable financing, enables you to capitalize on a company’s biggest asset – invoices from creditworthy clients. From these invoices, your company can be provided with much needed working capital to help your business grow. Thus, this method allows you to convert a large portion of your accounts receivable into cash very quickly. Thus, this alternative is defined as a financing method that enables a business owner to sell his account receivables at a discount to a third party funding source to raise financial capital.
The way account receivable factoring operates is through a financial exchange between two companies, the factor company and your company, which is in need of urgent cash. The process starts by turning over your account receivable to the factor company.
Lastly, this method ensures a fast and easy access to financial funds. You just have to present the necessary documents to the factor company and you will have the needed funds within 24 hours.
However, there an accompanying warning in acquiring funds using accounts receivable factoring. Since there are a lot of factor companies out there that hid dangerous stipulations in their terms and agreements, it is a must to have a careful study on them.
There are certain warnings that you should follow in accounts receivable factoring. A careful planning is a must. A careful study on the terms of agreements, as well as the rates, interests and stipulations is needed. However, to be on a safe side, it is much better to consult an experienced accountant to help you decide what best option is needed for your company.