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Accounts Receivable Factoring Helping Cash Flow

Factoring accounts receivablesWhen businesses decide to factor their accounts receivable it means they want to sell their outstanding invoices to invoice factoring companies for cash. Businesses with cash flow issues can turn to invoice factoring if there is a significant amount of money owed to them as a result of unpaid accounts receivable. Factoring invoices allows businesses to have immediate access to cash that is owed to them by their customers. If invoice factoring companies deem a business’s customers credit-worthy, they are likely to advance a large percentage of the total dollar value of the invoices to the businesses in as little as one day.

Cash Flow Problems: Solved!
Cash flow problems are a major issue for many businesses in all types of industries. It does not seem to matter if a business is new or old, well-established or a start-up. It is not uncommon with the unsteady state of the economy in the United States well as in many other countries worldwide for businesses to experience delays in getting  invoices paid in a timely fashion. When invoice payments are delayed by customers by as little as 30 days, a cash flow problem can develop and sometimes this can have adverse repercussions. When cash flow is an issue, businesses can be late paying their own bills or maintaining their product development obligations. In the worst case scenarios, cash flow problems can result in the inability to meet payroll requirements.

When businesses take advantage of accounts receivable invoice factoring, they are able to secure an ongoing supply of cash – assuming the outstanding invoices are tied to credit-worthy customers. With the successful use of  invoice factoring, the cycle of cash available to businesses can remain consistent. For example, because of the influx of cash, businesses are able to maintain the distribution of their products and services. This results in increased sales and therefore additional invoices to factor. When there are more invoices to factor, the amount of cash available to the business grows. When businesses are able to consistently meet the growing demands of their customers everybody wins.

Companies of Every Size Use Factoring
Many people believe that small and medium sized businesses are the most likely to use invoice factoring as a means of quickly raising cash. However, companies of all sizes have been known to factor their accounts receivable. In fact, many Fortune 500 companies have made use of this financial tactic at one point or another – or even on an on-going basis – in order to maintain positive cash flow. Because invoice factoring involves the sale of invoices by businesses to invoice factoring companies and does not involve a loan or taking on debt, it is often the preferred method of obtaining cash for businesses of all sizes. Invoice factoring involves little risk, and it is a means of increasing a business’s profitability significantly.

Let the Factoring Company Do the Work
When businesses utilize invoice factoring companies, they not only obtain immediate access to cash, but also may hand over the responsibilities associated with  collections efforts. In some situations, invoice factoring companies that purchase accounts receivable from businesses take over all tasks associated with processing payments and attempting to collect  outstanding invoices. This frees up significant time and resources for businesses so they can focus on product or service development and production rather than on spending time and money on accounting issues.

Factoring companies are highly experienced at handling all aspects of the accounts receivable process. From accepting and posting payments to attempting to collect payments from very late-paying customers, invoice factoring companies have one goal: to collect as many payments as possible on invoices they have purchased. The higher their success rate, the more likely they are to purchase additional invoices from the businesses where the invoices originated.

Many Benefits to Factoring Accounts Receivables to Help Cash Flow
There are dozens of benefits and very few downsides associated with factoring accounts receivable invoices. Most businesses that utilize invoice factoring as a means to help cash flow have nothing but positive remarks about the process. Additionally, invoice factoring has become so common among businesses of all sizes and in just about every industry that it is not only accepted as a normal business tactic, but it’s also seen as a smart business move.

Following are some of the most significant reasons businesses use invoice factoring as a means to improve cash flow:

  • Factoring A/R for cash flowAs soon as invoice factoring companies come to agreements with businesses regarding the sale of outstanding invoices, the transfer of cash to the businesses can happen very quickly – – sometimes in as little as one or two days.
  • The availability of additional cash is unlimited – – as long as there is a proven track record that a business’s customers are reliable in paying their invoices, and as long as there are new invoices available to factor.
  • When accounts receivable invoices are sold to invoice factoring companies, the need for businesses to spend valuable time and resources on collection efforts can be eliminated. This leaves more time for business and product development.
  • Businesses and factoring companies maintain an ongoing and open business relationship with each other. If there is ever a problem with a customer who is significantly late in paying an invoice or if there is a customer who is not paying at all, businesses and invoice factoring companies work together to determine the best way to handle the situation. The goal for both businesses and factoring companies is to ensure that the businesses’ customers remain happy, informed, and wanting to continue with additional purchases well into the future.
  • Businesses with a constant flow of cash are assured they will be able to pay for their own operating expenses, their payroll, their taxes, and their debts. When businesses are not enduring constant financial stress due to outstanding invoices, they are able to function and grow much more effectively and successfully.
  • Utilizing invoice factoring as a means of raising cash alleviates the need for businesses to take out short-term or long-term loans – – which can result in excessive debt that can be difficult to re-pay.

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Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.