What is Factoring of Receivables and How Can You Benefit From It?

If your business is cash-strapped and you’ve heard that factoring could be a great way to get out of a financial rut, then chances are, you’ve thought about factoring of receivables. Factoring is not rocket science. It’s actually a simple, cut-and-dried arrangement between you and a third party known as the Factor or factoring company.



Whatever business you engage in, whatever industry you belong to, you’ll always need a steady flow of cash to offset any changing cash needs that occur in the course of doing business.




For example, some of your equipment or tools may suddenly need to be repaired or upgraded. You may need to hire additional temporary staff whom you need to pay per day of service rendered. You may be offered bargain prices on materials that are important to your operations, but the catch is, you need to pay in cash for all your purchases.




All of those activities require spending, which wouldn’t pose a problem if your business had a continuous stream of cash payments. However, most likely what you have are accounts receivable or payments that are yet to be collected. Unfortunately, the waiting period can tie up your finances.




You have options to manage the situation:




  • You can defer making any purchase, no matter how necessary, until you have enough funds. The downside of this is you could jeopardize the efficiency and quality of your operations.




  • You can take out a loan and have to contend with interest rates, as well as expose yourself to the risk of being unable to meet your obligations on time because your account receivables don’t clear up as scheduled.




  • You can apply for factoring.




Factoring and Your Business




To understand what is factoring of receivables all about, review these steps:




  1. Present yourself to the Factor as a business that needs immediate access to cash and has a number of accounts receivables.




  1. Offer to sell your invoices to the Factor. Invoices are proof that products or services have been delivered to creditworthy customers, but no payments have been made yet, and as such, need to be collected.




  1. The Factor calculates the aggregate amount of the invoices. From the total, the Factor buys the invoices at a discounted price. The payment is given to you immediately, in cash.




  1. The Factor then takes care of collecting from the customers, and administers the sales ledgers.




When you consider that 26% of invoices that are 3 months old, 70% of invoices that are 6 months old, and 90% of invoices that are 12 months old become uncollectable, then it makes sense to inquire about your options with a factoring company such as Neebo Capital as soon as possible.




Neebo Capital will be able to inform you more about the details relevant to what is factoring of receivables, such as how much you can get for your invoices, in order to maintain the solidity of your business operations and the stability of your cash flow.