Accounts Receivable Financing 101: Getting Started


If you’re thinking about accounts receivable factoring or financing, also known as invoice discounting, you will need to fulfill certain criteria in order to qualify. First, you must operate or own a business which receives payments by sending invoices to creditworthy customers. Next, you should have a cash flow problem requiring invoices to be paid within a short period rather than waiting the requisite 30-90 days. Lastly, you will need to find the best factoring company in your area to work with.

Invoice discounting is a simple way to build your working capital stores without having to open credit line or get a loan from a bank. When you use this method, you have the convenience of getting your own money within a short time, rather than worrying about minimum installments and interest payments on loans.

With this financing method, your debtors are the ones assessed by factors. This should be a breeze, particularly if you already assessed your own debtors before extending credit to them. Banks on the other hand are interested in your creditworthiness, which can be a problem if your business hasn’t been around long enough to have a credit history.

If you’re thinking about factoring, the following are the steps to take in order to make the best of your experience.

  1. Learn about factoring

You can use online resources to learn about factoring, how it works and the benefits to your business. Talk to your contacts to get referrals about the best factoring company in your area. You will know good providers because they will be patient to explain the process and answer all your questions in detail.

  1. Assess your viability

As stated earlier, factoring is ideal for you if you have B2B customers that take a while before paying your invoices, your customers have a good repayment history and you occasionally have cash flow challenges.

If you fit this profile, talk to a reputable company to determine how they can get started in helping you. Many times, factoring will help you solve temporary cash flow problems without impacting your bottom-line with additional loan repayment expenses or other financial obligations.

  1. Choose the factoring company

It is best to go with a factoring company that understands how your industry works. Factors often specialize their services to specific industries which makes them better able to assess debtors and serve their clients. Talk to a few peers to find out which companies they trust then begin your assessment from there. You need a licensed lender who has been in operation for many years within your industry.

  1. Send your application

Once you choose the provider, you will be given specific instructions on how to go about applying for invoice discounting. This is usually a simple process that includes filling in an application (online or paper) and then submitting supplementary documentation such as your business invoices. The company takes as little as one or two business days to assess the invoices submitted and will give approval in that time. If successful, you should have the cash advance in as little as 24-72 hours.


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