Accounts Receivable Financing FAQ
Below you will find the answers to some of the most commonly asked accounts receivable financing questions.
What is Accounts Receivable Financing?
Accounts receivable financing, also known as accounts receivable factoring, is a valuable financial tool for business owners who struggle with cash flow. This method of business funding allows business owners to turn over their unpaid invoices and receive what they are owed, via a factoring company (rather than via their clients). It prevents long-term waiting on the part of the business, as they have access to an advance on their customer’s unpaid invoices.
Accounts Receivable Financing is Based on What?
Attaining business funding through accounts receivable financing is based on the unpaid invoices from the business’s customers. The business owner turns their unpaid invoices over to a factoring company in order to get paid, instead of waiting on customers to pay them. The factoring company pays the business for the amounts of the invoices, then receives payment from the customers, and takes a very small percentage of the money owed as a fee.
How Accounts Receivable Factoring Works?
Accounts receivable factoring works by having business owners sell their unpaid invoices to get cash flow quickly, instead of waiting for customers to pay what they owe. The factoring company that handles the funding will take the unpaid invoices and give the business a large percentage of the invoice amount, while keeping a very small percentage as a fee. The customer then directly pays the factoring company instead of the business, satisfying the transaction.
What is Accounts Receivable Financing Based On?
Accounts receivable financing is based on a business’s invoices (a.k.a. accounts receivable). For example, when a company has customer invoices that have gone unpaid, the company can sell them to a factoring business that will pay the company a large percentage of the invoices’ total – right away. This valuable assistance gives companies the cash flow that they need to grow, while relieving the stress of waiting for customers to pay their invoices.