What is accounts receivable factoring?
In today’s competitive market, businesses often need effective financial tools to manage cash flow and drive growth. Among these tools, accounts receivable factoring stands out as a practical solution for companies looking to improve liquidity quickly.
It allows businesses to convert unpaid invoices into immediate cash, helping them cover expenses, invest in opportunities, and avoid additional debt.
What is accounts receivable or Invoice factoring?
Accounts receivable factoring is a financial service where a business sells its outstanding invoices to a factoring company, also known as a “factor.”
In return, the business receives a percentage of the invoice value, typically 80-90%, providing fast cash.
The factoring company then collects the payment from the customer when it’s due, offering an essential cash boost for businesses with a backlog of unpaid invoices.
How does accounts receivable factoring work?
The process of Receivables financing is straightforward, consisting of a few simple steps:
- Invoice Creation: The business provides goods or services and issues an invoice to the customer with specific payment terms.
- Sell the Invoice: The business sells the invoice to a factoring company like Expocredit, usually at a discount. Expocredit advances a majority of the invoice amount upfront, giving the business immediate access to cash.
- Collection and Payment: The factoring company collects payment from the customer when the invoice reaches its due date.
- Final Settlement: Once the payment is received, the factoring company pays the remaining balance to the business, minus a service fee.
This approach provides companies with cash quickly, minimizing disruptions from long payment cycles.
Looking for a cash flow solution? Click here and explore our accounts receivable factoring services.
Example of receivables financing
Consider a manufacturing company that issues invoices with 60-day payment terms, limiting its ability to cover expenses or invest in growth.
The company decides to use accounts receivable factoring with a factoring company.
If the company sells a $100,000 invoice to the factoring company, who advances 85% of the invoice amount, providing $85,000 in immediate cash.
The factoring company collects the invoice amount from the customer and, once paid, returns the remaining balance to the company, minus a fee.
Can you sell accounts receivable to factors?
Yes, businesses can sell accounts receivable to factoring companies.
For companies experiencing rapid growth or short-term cash needs, this can be a helpful solution.
Selling accounts receivables means transferring invoices at a discount to a factoring company, providing cash without the burden of long-term debt.
Factoring is generally a short-term financing solution that allows companies to manage cash flow during periods of growth or temporary challenges.
Factoring may not be suitable for every business, but it’s ideal for those with frequent cash flow gaps due to delayed customer payments.
Is factoring receivables a good idea?
For many small and medium-sized businesses, factoring receivables is an effective way to manage cash flow and support growth.
Cash flow challenges are common for companies waiting for client payments, and accounts receivable factoring helps by providing immediate funds.
This solution is especially beneficial for businesses needing to finance new projects while waiting on previous invoices.
Factoring provides fast access to capital, helping businesses manage costs, expand, and accept new orders without cash flow issues.
Expocredit: Your trusted partner for business growth.
With over 20 years of experience in non-recourse factoring, Expocredit is a reliable partner for companies worldwide.
Not only do we provide capital, but we also assume the risk of non-payment, managing the collection process so you don’t have to.
This non-recourse financing allows businesses to focus on core activities without the stress of collecting unpaid invoices or managing cash flow risks.
Expocredit has built solid relationships with reputable banks like Bank Mercantil, Bank United, and Bank Sabadell, enabling us to offer robust financial solutions across multiple industries.
During the COVID-19 pandemic, we supported businesses worldwide, increasing our credit line by $40 million with help from institutions such as Woodforest Bank and Cadence Bank.
Strengthen your cash flow with Expocredit
In summary, accounts receivable factoring is a powerful tool for businesses in need of quick liquidity and efficient cash flow management.
Expocredit, a leader in non-recourse factoring, offers companies the opportunity to leverage unpaid invoices for immediate capital.
If you’re seeking to bridge cash flow gaps, manage growth, or cover expenses, Expocredit’s factoring services can help you achieve these goals while keeping your focus on future success.