A/R Factoring: A Good ‘Factor’ To Serve Your Business Needs

In today’s competitive business environment, it is necessary for companies to tighten controls over its operations so that they may remain in profit. But many- a-times they have to remain concerned about credit and cash flow needs. This is more the case with smaller companies. As a result of this they are not able to pay enough attention to think of ways to increasing further their profits, devising newer marketing or sales strategies. Also cash stuck-up in accounts receivables, which are due for payment after some period of time, is a problem for them. Many times these companies find that there are lot of growth opportunities, but lack of working capital serves as a hindrance in their objectives.

Accounts Receivable Factoring or A/R Factoring can serve as an important means to free up capital stuck-up in invoices which are not yet due for payment. Factoring lets your invoices to be used as collateral for receiving cash flows. This short term loan provides small business with much needed cash for its growth purpose or other imminent needs.           

Understanding Factoring

Factoring is selling of invoices or account receivables by a business to a provider of factoring service. Invoices are sold at a discount. Normally small sized businesses make use of this service to which banks are hesitant to give funds. Factoring fills void that has been created by banks.  

Criteria Which Factoring Agencies Look For

Typically factoring agencies look for certain criteria while processing applications of businesses who want their services. The business concerned should have certain minimum annual sales. Customers of the business should be financially strong. They should have a history of regular payment of invoices which were due to them. Account receivables of business should not be already pledged as collateral of some previous loan. Company is not entangled in litigations. Though these are not hard and fast rules, but more these are in your favour, the better it is to get cash from factoring agencies.  

Advantages of Factoring

Generally applicants meeting the criteria get approval in a period of seven-eight days. After this, funding is more immediate.

It is not loan rather purchasing of invoices at a discounted price. Business gets money from factor and factor from customers of the business.