An accounts receivable is a transaction between two businesses whereby one business sells to another on terms. Payment terms can vary depending on the party’s agreement, but net 30 is typical. An accounts receivable (invoice) is sent to the buyer once the seller delivers the product/service. This invoice becomes an asset of the sellers business and can be sold in exchange for cash. Accounts receivable financing allows the seller to get a high advance in the form of cash, immediately by selling the receivable to a third party. This is called Accounts Receivable financing.
Factoring is a way to finance a business that is in need of cash flow and/or experiencing growth. Factoring provides immediate cash in exchange for invoices. Factoring is the purchase of accounts receivable giving businesses control over how and when they can grow without creating debt on their balance sheet. Usually taking 7-10 business days for the initial funding, factoring can be set up for a business in a few simple steps.
Small Business Factoring is an excellent tool for business owners, especially ones that are not yet qualifying for traditional bank financing. Small Business Factoring helps maintain cash flow for the general expenses of a start-up, funding for growth, and can also function as receivable management support for a company with a small staff.
Taking an advance against your invoice(s) creates cash flow for your business. Factoring is a tool that many business owners use to expedite growth and smooth out cash crunches, among a variety of other reasons!