Thursday, July 15, 2010
Account receivable factoring is used by many businesses in need of working capital. By simply selling account receivables or invoices for products or services provided to a "factor" a business can obtain almost immediate access to capital. This benefits many younger businesses and growth businesses that run into cash flow problems at times. A business would sell the invoices for a discount to the factor, which then pays you for them giving you cash instead of having to wait for the invoice to be paid. It also reduces the risk of clients not paying invoices on time. The factor will be in charge of collecting the payments from your clients. Since they are taking a risk the factor will need to make sure that the client is creditworthy before they purchase that invoice from you buy account receivable. The basis of getting approved is based on the creditworthiness of your client, and not the creditworthiness of your business. Many business owners are forced to give up equity or ownership of their business when going after capital because investors or business partners will need to be taken on for capital. With account receivable financing an entrepreneur gets access to capital, but they don't have to give up any ownership or control of the business.
Posted by Basha at 10:37 PM