Entrepreneurs who are familiar with accounts receivable factoring know how easy and convenient factoring receivables can be. Those who have never tried this form of financing might have a few questions about it. Here are 9 things you probably didn’t know about accounts receivable factoring.
1. Factoring is a very old form of financing for businesses
Factoring receivables is one of the oldest known forms of financing for businesses. In 2,000 BC, Mesopotamian merchants gave cash advances to agents that they hired to travel and purchase goods for them. Factoring evolved and became what it is today.
2. Factoring receivables allows businesses to take on new customers
When the customers of a small business are taking some time to pay their invoices, the business might not be able to take on new customers because it lacks the funds to purchase the supplies it needs. Factoring receivables can be the solution.
3. Factoring receivables helps businesses grow
Businesses that turn to factoring receivables will receive the cash they need to purchase supplies, to pay their employees and their bills. When businesses are in need of immediate cash flow, factoring will help them grow.
4. Some factoring companies make their clients sign a contract
Some factoring companies make their clients sign a contract, which might not be ideal for these clients if they are in need of some flexibility. If you need to turn to factoring, look for a factor that won’t lock you in a contract.
5. Even businesses with poor credit can qualify for accounts receivable factoring
Businesses with poor credit can find it very difficult to get a business loan from a bank. Fortunately, these businesses can qualify for factoring, since factoring companies look at the credit of their customers, not only at their own credit.
6. Factoring receivables is more simple than getting a loan from a bank
Requesting a business loan from a bank involves a lot of paperwork, and the process can take some time. Creating an account with a factoring company is more simple, and you are sure to get your money more quickly.
7. You can receive the cash you need very quickly when you factor your invoices
Businesses can often create an account with a factoring company in less than 24 hours. When they want to factor one of their invoices, they should be able to receive the cash they need the same day.
8. Your customers don’t have to know that you turned to factoring
Businesses that don’t want their customers to know they have turned to factoring receivables have to make sure their factoring company offers non-notification. If they don’t, their factoring company will contact their customers to ask for payment of the factored invoices.
9. Factoring receivables can be expensive
Of course, factoring receivables isn’t free. It can even be too expensive for some small businesses, since factoring companies generally charge between 1.5% and 5% of each invoice they factor, and many of them offer their services with some hidden fees.