How does receivable factoring work

Accounts receivable factoring is used to smooth out the gaps in your cash flow caused by slow-payers. Any small business owner knows that waiting for customers to pay invoices while trying to cover expenses and payroll is frustrating. Accounts receivable factoring is a simple way to get paid faster — typically within 24 hours — for outstanding receivables.

Factor Finders specializes in flexible accounts receivable factoring solutions for both start-ups and long-established companies. Businesses in almost every industry can turn their receivables into fast funding with AR factoring.

Secure the funds you need today. Complete the form or call Accounts receivable factoring features a number of benefits that can help you streamline operations and make your money go further. Far more than a simple financing option, factoring is a total business solution. You will work with a dedicated account manager who is committed to helping your business grow and has the expertise to assist you every step of the way.

Unlike a traditional bank loan, accounts receivable factoring companies do not offer a fixed credit line. Instead, as your sales increase so does your access to immediate working capital. You do not have to factor a set dollar amount each month to keep your account active. That is where factoring comes into the picture. You do not have to wait for your accounts receivables to fund growth.

You can use your existing business to fund your growth with factoring. The most obvious benefit of factoring receivables is not waiting for your customers to pay you. But there are other benefits, too. Sooner or later, your growing company is going to need more cash than it currently has on hand.

Options available to many business owners are a traditional bank loan, a bank line of credit and invoice or receivables factoring. When businesses need money, both traditional bank loans and factoring may come up as possible solutions, but the two are as different as night and day. With bank loans, your business must present specific documentation and proof of financial performance along with other paperwork.

They might also require business or personal property as collateral to secure funding. Once the details and paperwork are submitted, the bank will decide whether or not they will approve your request for a loan. The process can take weeks and even months to complete. Factoring is faster and more flexible. While the traditional bank-lending process is arduous, it is seen as necessary to minimize risk that you might default on the loan. If the bank has any questions or doubts, they will either deny your loan request or charge you extra for the money you borrow higher interest rates, additional fees, etc.

This is especially challenging for startups or businesses with a less-than-perfect financial track record. In some cases, bank lenders will place restrictions as to how the loaned funds can be used. For instance, the bank may require the money go toward equipment, vehicles or furnishings versus payroll expenses or marketing. They might also stipulate that your business does not incur additional debts. In other words, even if you make it through the hoops, take the time and get the money, traditional bank loans may place limits on how you can use it.

A bank line of credit is a source of funding extended to a company to help meet its liquidity needs. It is generally intended to be a short-term arrangement.

Interest is paid only on the funds actually borrowed, although some banks charge fees to establish the credit line and may also require you to pay an annualized fee on money not withdrawn. No additional debt is created. Rather than waiting up to 60 — or even 90 — days for loan monies to be approved and paid, factoring can give you access to your funds almost immediately.

The fastest way to see if you qualify for factoring is to submit an online application to get the process started. There is zero obligation. Once we have your information, we will be in touch to discuss your unique situation and make recommendations to help support your goals and needs. For more specifics about invoice factoring, visit MP Star Financial online or schedule time to talk with a representative. MP Star can get funds to your account faster. Call MP Star Financial today at , extension In this article: What is Factoring Receivables?

How Factoring Receivables Works The factoring company such as MP Star Financial buys your customer invoices from you, and then quickly provides you with funds — usually the same business day. Step 2: You invoice the customer as soon as the services are delivered.

Step 3: You present the invoice to MP Star. Step 4: Your customer pays their invoice with your name on it to MP Star. After payment is received, the reserve amount minus transaction fees is sent to your company. The Standard Factoring Agreement Process Here is a more detailed, step-by-step look at the process of how invoice factoring works based on a standard factoring agreement and process. Once the factoring company is able to verify that the invoice is good, they typically advance 80 to 95 percent of the amount of the factored invoices the same or next day.

Step 4: Final Payment to Seller You Once the payment has been received, the factor pays you the seller of the invoices , the remaining ten percent, less the factoring fee, which typically runs one-percent to three-percent of the total invoice value. Please note: All advance rates, discount rates or fees are agreed upon in advance while being set up. There are many things to consider when looking into different factoring companies.

Even though each factoring company is offering a similar service, there are many points that differentiate them. Each factoring company will have different funding rates, advance rates, contract terms and requirements. Some factors will require a personal guarantee, or maybe will require you to factor all invoices that the company produces, and other factoring companies will let you pick and choose.

Many factoring companies also have certain industries that they specialize in. With this added knowledge, these factoring companies will more likely understand your industry, giving you added flexibility, generally better rates, and be a better partner overall.

Ask the factoring company, which industries they specialize in before making your choice of factors. Find one that understands what you do, does not stifle your growth, but gives you the necessary capital and partnership to enable the growth of your business. I had an oil field company that was starving for cash flow due to oil companies paying net 60 and 90, we were a new company and the banks were not supportive.

Meritus provided us a very simple process of turning our invoices into cash, reducing the waiting cycle from 12 weekly cycles to 1 week.

Because of Meritus we took a small company from , to 17,, in a very short period," said Lee Washington after working with Meritus Capital. Factoring fees can come in many different shapes and sizes.

The main thing you need to make sure of is that you understand what fees are going to be incurred by doing business with a factoring company. Make sure to ask the right questions! Here are some ways in which fees can be charged: As a percentage of the invoice They can depend on how long the invoice remains unpaid There can be wire and ACH fees Administrative fees Interest and much more Make sure you read the contract and understand all of the fees in which you are going to be charged so that you can make a smart decision about which structure is the best and most cost effective for you.

The two most common fees charged are flat fees and tiered rate fees. Here is a quick explanation on how they typically work. Flat Fees Flat fees are really just how they sound. They are when a factoring company charges a one-time flat discount fee for the factoring of the invoice regardless of how long or how quickly the invoice is paid. This may influence which products we write about and where and how the product appears on a page.

However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. When a business has an unpaid customer invoice but can't wait 30 to 90 days for a payment, accounts receivable factoring may offer a solution.

The factoring company follows up with the customer for payment. After receiving it, the factoring company pays the business the remainder of the invoice amount, minus fees. This financing method — also known as invoice factoring or factoring receivables — allows companies to quickly access cash they have earned. Could accounts receivable factoring help your business bridge cash-flow gaps? Factoring companies set prices based on the value of the accounts receivable.