Basic Accounting

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One of the quickest way to a business to improve cash flow is through the use of accounts receivables factoring. Just what is factoring and how does it work?

Factoring is defined as the “selling of an interest in your receivables or invoices to a factor at a small discount in return for immediate cash.” The factor, referred to as the company that purchases the invoices, will charge a small percentage as a fee to collect the invoices and advance the money. In most cases, there are no upfront processing fees or application charges whatsoever.

The history of factoring goes back to quite a long way into history. Factoring’s origins go back thousands of years, to the Mesopotamians. It was also a vital source of financing for American colonists who would ship furs, lumber and tobacco to England. Subsequently, one of factoring’s biggest users was the U.S. garment industry, where the time between procuring cloth to be made into a suit, say, and being paid for the final product could be many months.

Often times, businesses will choose to factor only a portion of their invoices, choosing to collect on their own invoices during cash surpluses and factor their receivables during tight months. By working with an experienced company, businesses reduce the risk of customers being confused as to the payment process.

In some industries, factoring may be regarded as a less worthy financing option, such as bank loans. In fact, it is sometimes a more advantageous type of financing, based on the specific needs of the business.

“As a subcontractor for custom doors on construction jobs, we’d have to wait 30 to 60 days for our money,” says a satisfied customer. Now we can get our money right away and keep our cash working for our business.

Brian Little is an Business Finance Consultant with Bedrock Financial Group, LLC. providing financing solutions to small and medium sized businesses nationwide. He publishes “Business Focus”, a monthly on-line newsletter and writes for his blog “Thoughts on Business and Life.”

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Not only is it more friendly and human, but you can also get great rates for personal loans , home loans and short term loans.