Whenever you extend credit to your customers, you usually have to wait to get paid for the services or products sold. While you’re waiting to get paid, other aspects of your business must continue. If you don’t have the cash to pay your bills or employees, you’ll have to find the money elsewhere. One way of getting the money you need during those lean times is with a process called AR funding. This procedure might be the answer to your query.
Getting money from the sale of your accounts receivable accounts or invoices is called factoring. The funding company that will be buying your invoices is known as a factor. When you bring your invoices to a factor, they will verify them, and give you an advance on 80 to 90 percent of their face value. After the invoice is paid, the funding company will give you the remaining balance less their service fee. This is better than a bank loan since lenders can take a long time to approve your loan if they approve it at all. AR funding can be completed in a much shorter timeframe.
There are many benefits of selling invoices as opposed to getting a bank loan. With factoring, no one tells you what to spend the money on. You can buy equipment, pay bills, or spend the money on whatever else your business needs. Factors don’t care how good or bad your credit is, they’re interested in your customers’ ability to pay. This is good to know if your company is new and it hasn’t established any real credit history. You won’t have to worry about being saddled with more debt because factoring invoices isn’t a loan; it’s merely the selling of an existing invoice. If you use AR funding, you’ll find that there are no long-term contracts, nor any maximum or minimum quotas to meet, you can factor any amount of invoices you want.
To start the factoring process, it may be best for your company and the factoring company to learn about each other by way of a telephone call or online query. If you both are satisfied, you can continue by filling out an application. With your application, you’ll also have to include a sample invoice, an accounts receivable aging report, a copy of your company’s legal entity, and a copy of last year’s tax return.
Factoring has helped many businesses keep their doors open during hard times. Your company may end up enjoying the use of AR funding for many years to come. After you have been selling invoices for a while, you might just ask yourself why you didn’t think of this sooner.