It can be tough being a business owner when you discover that you don’t have quite enough cash to meet your needs. Whether you are looking for cash to pay the wages next week, or you want to invest in a piece of equipment that will make your company more profitable, it may well be that you have money owing to you from customers but they won’t pay in time to get you what you need. In this instance, you need to know about a system known as factoring accounts receivable, and these are the main points to get you better informed.
What Is Factoring Accounts Receivable?
This system of obtaining business cash flow is also known as accounts receiving financing. It involves taking the current outstanding accounts that are owed to you by your customer and selling them to a specialty company like Invoice Payment System Corp.
The purchasing company pays you a percentage of what the invoices are worth which in turn gives you the money you need to run your business. They take the invoices and then tend to the collection of the payment from your client. Obviously, the difference between what you were paid for the invoice and what the company collects is how the financing company makes their money.
What To Expect
One of the benefits of selling your owed accounts is the speed with which you can receive your money. Provided you have all the information required ready and available, you could see payment being made the same day.
The amount of money you receive for your accounts is going to vary on a number of different factors. You could receive as much as 95% of the value of the invoices, but you could receive as little as 80%. The variables that determine the worth of your business accounts include the type of industry you are operating in and the past credit history of your customers. If you have continually had problems collecting money owed to you in the past from your customers, and they are notorious for being slow payers, you are going to get less for these accounts because the financing company is going to have to wait to get a return on their investment.
Benefits Of Factoring
There are two big benefits of factoring your accounts. Not only do you get speedy cash when you first sell all your outstanding invoices, but it is a system that can be used again in the future as well.
Each time you invoice a client, send the invoice through to your factoring agent and you’ll get paid straight away for it. While it is a lower amount than being paid directly, it immediately removes the stress that comes from having to chase your clients for money. No more overdue bills to deal with, and plenty of on-hand operating cash ready to pay your wages and invest in new equipment.
When you are struggling to keep things running because your clients are not paying you on time, this is the perfect system to make sure that your business will survive through the years ahead.