It might seem like accounts receivable factoring is a relatively new form of financing which only appeared within the last couple decades. However, the truth is that accounts receivable financing is one of the oldest forms of financing in the world, and it has literally been around for ages. It’s true that it has received much more attention in the last 20 years or so, because many small business owners are turning to it as a way of securing funding, because they’re being rejected by bankers. Here’s how accounts receivable financing actually works.

How the Process Works

In accounts receivable lending, it doesn’t matter so much what your credit history might be, because the lender isn’t really interested in your credit history. They will be much more concerned with the payment history of your customers, specifically with how promptly they pay their invoices. This is because you will sell some or all of your monthly invoices to an alternative lender in exchange for an upfront sum of cash.

It will then fall upon the lender to collect the money from those invoices from your customers. The money you get upfront will be some percentage of the value of the invoices, usually around 80%. Once the factor collects on the invoices, you would be paid the remaining 20% of the invoice value, after the factor has subtracted out their fee for providing the service.

The beauty of this arrangement is that you get immediate cash rather than having to wait for your customers to pay you after 30, 60, or 90 days. This will allow you to focus far less time on collecting payments from customers, so you can put much more time into managing your business efficiently. You might even be able to reallocate personnel in your company from collections to more business-specific tasks.

Accounts Receivable financing can generally be secured by most businesses, assuming that you have a good volume of invoices and that your customers pay promptly. That makes this an invaluable service, because it provides you with funding that you probably wouldn’t be able to secure from a bank.

Interested in Accounts Receivable Financing? 

Contact us at Commercial Capital Finance if you’d like to apply for accounts receivable financing, or if you’d like to find out how it can help your small business. We’ll be glad to explain the process to you, so you can determine whether it’s a good fit for your company.