While many financial options for small businesses are extremely time-consuming and not at all user-friendly, accounts receivable (A/R), factoring is a very simple and streamlined process.
Those business owners not familiar with the process of A/R factoring will benefit from a quick review of the process. By understanding how it works and the advantages of this funding option over traditional loans, lines of credit or high-interest credit cards, it is easy to make the best decision for your business finance needs.
With the top companies offering A/R factoring, the application is an extremely simple process. It is completed online and requires basic information about your business and the invoices you wish to factor.
As there is no loan, your business credit rating is not considered. Rather, the factor will consider the creditworthiness of customers whose accounts receivable you are selling.
Most online applications take less than 10 to 15 minutes, and approval is provided within 24 hours.
Once approved and invoices submitted to the A/R factoring service, the factor then advances up to 80% of the funds into your business account. This is done through an electronic transfer and funds are available in just a few days even with a first application. There will be another small transfer once your customers have paid their invoice to the factor and the account is closed.
Fees and Costs
The factor will charge a specific rate for services. This will vary based on many different considerations, but it will be provided to you in writing before you enter into the agreement.
Top factors do not charge any additional hidden fees or costs over and above the quoted rate. For these fees, the factor handles all back office support of the invoices they purchase, eliminating the need for your business to do anything further with regards to the accounts receivables sold.