Factoring Receivables Can Be a Quick Cash Flow Solution

Factoring Receivables Can Be a Quick Cash Flow Solution

Factoring receivables has become a very popular way to cash flow a business that carries accounts receivables on the books.  It started out as a way for companies that did not have the financial strength required by banks to receive the working capital they needed to grow and cover expenses during the growth curve.  In a nutshell, the factoring company is providing immediate cash for invoices generated by the business in need of working capital.  The credit quality of the customers provides the basis for the factoring company to approve the factoring credit facility.  Sounds simple, but now that accounts receivable factoring has become more common, more and more factoring firms are asking for documentation and financial reporting that banks require, making the approval process a long drawn out process for the business.

The best way to avoid these paper pushing factoring companies is to ask what is needed to actually fund your transaction.  If they require your business financials, tax returns, personal financial statements, proof of taxes being paid, and other items that do not pertain to your receivables you are in for a long drawn out process that can be avoided.  Our advice is to move on and find a real factoring firm.  Some traditional factoring companies do still exist that only require the following items to fund your transaction: application, customer list, and a recent accounts receivable summary aging report.  This allows them to evaluate your receivables which are what they are providing the funds on in the first place.  The only other items would be a copy of your driver’s license and your company’s articles of incorporation.  Within 48 hours your deal should be able to be funded, not just quoted.

Invoice factoring should be fast, not a several week’s long process.  So remember to ask up front what the factor needs to fund your transaction.  If you receive a ten item list, keep looking for factoring company that will approve and fund your transaction based on your customer’s credit, not your personal and business financial data.  Factoring can be a great and fast working capital solution if you are selective and find a good factoring company.

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