Accounts receivable financing, also known as invoice factoring, is a business financing option for small business owners to receive cash advances on their unpaid invoices. It’s a convenient and fast way for small and mid-sized businesses to raise capital. This type of financing approves businesses quickly, provides them with fast access to capital, helps them stay on top of expenses, and ultimately assists in growing the business.

How does accounts receivable financing work?

Instead of a business waiting, sometimes up to 90 days for a customer to pay the invoice, an invoice factoring company will advance typically between 70% to 95% of the invoice amount upfront. Selling your invoices to an accounts receivable financing company allows them to advance your funds immediately, so your business doesn’t need to experience additional financial strain.

Invoice factoring vs. Invoice financing

Accounts receivable financing is also referred to as invoice factoring. A business sells its accounts receivables at a discount to receive payment from the outstanding invoice. Instead of a business selling their accounts receivables, invoice financing uses a business’s collateral to qualify them for a loan.

Here are some top reasons how accounts receivable financing can help your business:

Approval is quick and easy

Approval for a business loan through traditional financing sometimes takes months and requires collateral and a good credit score for approval. An invoice factoring company bases a business’s approval on the customer’s credit score, not the business’s. Porter Capital can approve a business in as little as one business day. Many companies choose this type of financing because it’s hassle-free, convenient, and provides your business with consistent cash flow.

Fast access to capital

When businesses grow quickly, they need to buy more inventory, hire new employees, and sometimes purchase new property. However, not all companies will have the working capital to support growth. Invoice factoring helps businesses get fast access to cash from their accounts receivable, so they take on more growth opportunities. Ideally, a growing company will have more accounts receivable to finance and receive funding 24-hours after sending in outstanding invoices.

Helps struggling businesses

All businesses go through up and downs. Sometimes the industry is in decline, or a product has a recall. Whatever the reason, all businesses need financial assistance during these times to survive. Often, traditional banks won’t approve a business that’s taking a downturn. Luckily, factoring companies are more concerned with the customer’s financial status and not the business itself. Invoice factoring is a reliable source for businesses in the long and short term.

Factoring is flexible

Although factoring can sometimes be more expensive than traditional types of financing, the positives outweigh the negatives. Businesses can take advantage of vendor discounts, discounts on large inventory orders, or incomparable sale prices because they can access their capital through factoring. Having consistent cash flow helps a company take advantage of opportunities otherwise missed out on.

Factoring helps with accounts receivable management

A factoring company not only provides you with fast payments but also with back-office assistance with your receivables. A factor will help manage and administer the accounts receivables of its clients, ensuring that debtors pay on time. Having this assistance can help a business decrease its bad debt, improve its performance, and run a smoother operation.

The process of accounts receivable financing:

  • Send outstanding customer invoices to your factoring company for approval.
  • You’ll receive immediate funding for an approved invoice. The funding advance can be anywhere from 70% to 95% of the total amount and depends on the invoice’s size, customer’s industry, and credit.
  • The factor holds onto a portion of funds until the customer pays the rest of the invoice amount at the end of the payment term.

  • The factor sends the remaining invoice amount, minus a small factoring fee, once the receivables are collected.

All businesses in the B2B spaces with clear repayment terms can benefit from invoice factoring. When a company is experiencing a cash-flow shortage and cannot support a business opportunity, pay their employees, or maintain liquidity, using accounts receivable financing provides them with the capital they need to operate.