For as long as there will be businesses who need money, there will always be accounts receivable financing companies competing for the business’ receivables.
Before I get into the three helpful receivable financing companies out there, let me shed some light on why there are so many companies offering factoring services out there. All businesses, no matter what kind or in what industry, need money to sustain day to day operations and grow.
While that will always be the case, it will also always be the case that money will remain the most scarce resource. It doesn’t grow on trees after all. It is because of that scarcity that business accounts receivable financing has become a widely offered practice.
If you want to know more about what is receivable financing, I suggest you read my article on that topic. In this article, I plan on writing about how factoring exactly works from the factoring company’s perspective.
How does the Accounts Receivable Financing process work?
As a business, you first have to put together a list of all the invoices that are owed to you by your customers and clients. Factoring companies typically require that these invoices are signed by the customer, along with some other customer information which depends on the factoring company’s guidelines.
This list is then sent to the factoring company, who conducts their own background checks on your customers to evaluate their risk. In other words, they are interested in the credit worthiness of your clients and customers.
Based on their research, they will either accept or deny your invoices. If they accept to take the invoices, they will decide what rate to charge you and how much money they can advance to you.
The company then goes through the individual invoices and notifies your customers that they have taken over the invoice. The notification informs your customers to pay them directly instead of paying your business.
It can take up to a week to get your advance (money) from the factoring company, although once a relationship is established it can take as less as 24 hours. Payments can be via paper check or direct deposit ACH which is a more common way of doing business now.
How much are you paid by the factoring company?
You will be paid the face amount (receivable balance) minus the discount rate, or the percentage that the company charges you for their services.
The first payment is usually up to 90% of what the company owes you, and once they collect from your customers, you will be paid the rest of the amount net of all the fees and charges. These fees are generally between 1% to 5%, though more commonly in the 3% to 4% range in my experience.
What are some good Receivable Financing Companies?
I can only speak from my experience based on the companies I have researched, tried and tested over the years. I have been an entrepreneur for a few years now, and I resorted to business accounts receivable financing first when I was denied loans by the banks and the SBA.
The following companies provided me with quality accounts receivable financing services when I first started out.
- – JD Financial
- – BTB Capital – Greg de Vries over at BTB knows this business inside out
- – ACA – American Capital Advance