importance of working capital management

Small Business 101: What Is Business Receivable Factoring?

Starting and running a small business involves a lot of work and, unfortunately, it’s quite easy to fail within the first few months. As your company gets off the ground, you’ll need to handle everything from employee on-boarding and sales to managing expenses and invoices.

Thankfully, there are professional accounts receivable financing companies out there that can help you and your business better handle all your finances through invoice factoring services.

business receivables factoring

What Is Business Receivable Factoring?

The global factoring industry involves more than $3 trillion. Since startups and small businesses often struggle to come up with enough money early on, business receivable factoring can help them acquire the money that they deserve and have coming to them quickly and on a guaranteed schedule. Rather than waiting 90 days for a single invoice to be paid, receiving the money you need within a day or two can help you handle all the important financial aspects of your business in a timely manner.

Hopefully, this guide will help you better understand what business receivable factoring is and will set you and your small business up for a successful future. Here are some important aspects of business receivable factoring:

 

  • Invoices are rarely paid on time — It’s just part of business. When you send out various invoices, companies might take 30, 60, or even 90 days to deliver you your hard-earned money. It’s been estimated that if all invoices were paid on time, U.S. small businesses could collectively hire 2.1 million more employees, subsequently reducing unemployment by 27%. Sadly, this isn’t the case. With invoice factoring, you’ll be able to receive money to address your financial needs immediately instead of waiting to get paid.

 

  • Understand the factoring fees — A factoring fee will be charged once factoring services are administered. Since factoring transactions involve purchasing invoices, the fee involved is normally a percentage of the face value of the invoices and the amount due is typically tied to the length of time it remains unpaid. Understand what the fee might be if the invoice doesn’t pay for 60 days or more.

 

  • Advanced rates are even more immediate — The advance rate is the percentage of the invoice that is paid out by the factoring company service upfront. As soon as the invoice is paid, the factor gives the not-advanced portion of the invoice, less the fees to the business as a factoring rebate.

 

If you still are wondering what business receivable factoring is and want to learn more about the invoice factoring process, give Eagle Business Credit a call right away.

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