What are the benefits of factoring receivables?

Faster cash flow is the main benefit of factoring receivables, but it is not the only benefit factoring finance tools have to offer.

Benefits of Factoring Receivables

Why factor receivables?

What are the benefits of factoring receivables?

Receivables are a valuable asset, and you can leverage them through factoring finance companies to grow your business faster. Receivables invoice factoring allows your company to expedite cash flow by turning the money owed to you (from customers or clients you invoice on terms or from third-party earnings statements) into immediately available cash.

Rather than waiting weeks – or months – to get paid, you can receive cash for factored accounts receivable invoices, earnings statements, progress invoices (e.g., government contract factoring), and so on on the same day they are generated. Another benefit of leveraging accounts receivable in this way is that it also enables you to offer more appealing credit terms to your clients, which may provide your business with a competitive advantage.

Factoring receivables allows your business to enjoy immediate access to working capital and replenishes cash flow more quickly, which makes managing your day-to-day expenses much easier. Plus, unlocking working capital expedites your cash flow on a more consistent basis, giving you the opportunity to confidently pursue bigger clients and new business opportunities.

How does factoring receivables work?

How the process of factoring receivables works:

Your company provides a product or service to another business, government agency, or another type of organization, or your goods or services are sold on a third-party platform (think app developers selling on Google Play or the Apple Store, or Amazon merchants or Zulily vendors). Upon fulfillment, an accounts receivable invoice is created or a promise of future payment is made to you by a third party.

Instead of having to wait for weeks or months to receive payment, you factor – or sell – the invoice or promised reseller payment to a receivables financing company for a small fee, called a factoring fee. (Factoring fees often range from 1-10%.)

In return, you get immediate access to working capital in the form of an advance, which will usually be 90-98% of the invoice (or promised reseller payment amount). Once your customer remits payment for the invoice to the factoring company, if any amount has been held in reserve, it’s then released back to you.

Who can access the benefits of factoring receivables?

Nearly any type of B2B organization may be eligible to access the benefits of factoring receivables, including those that invoice customers for payment as well as other business models, like temp staffing agencies and recruitment firms, government contractors, oil and gas companies, supply chain distributors and manufacturers, and third-party vendors and merchants selling on e-commerce retail sites, app stores, and other resellers.

Receivables factoring calculator

Use the invoice factoring calculator below to determine how much working capital your organization could access immediately by factoring receivables instead of chasing customer payments.

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Receivables Factoring Scenario

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Benefits of factoring receivables – financing scenario

For instance, let’s say you recently completed a job for one of your customers for a flat fee of $50,000. Here’s how the receivables factoring process might look (assuming a 2% factoring fee and 98% advance rate):

Invoice your customer $50,000 and factor the invoice with a top receivables financing company
Get a same-day advance of $49,000
Factoring company realizes the 2% factoring fee once your customer has paid the invoice

No more chasing customer payments or sitting on the sidelines waiting for payments to come in so you can reinvest in business growth!

We’ll help you find the best receivables financing company

One of the reasons we know how to choose a factoring company is that our team has years of direct experience working in an outstanding invoice factoring company! We work with the best factoring companies, including programs offering:

Factoring fees as low as 1-2%
High factoring advances – up to 98%
Free same and next business day ACH funding
No hidden fees and no application, due diligence, notification, or proposal fees
Free credit checks to help you vet new customers
No factoring minimums – factor only when you choose!
No long term contracts – they want to earn your business and referrals
High level of customer service
Dedicated account managers

At the end of the day, you want to work with a factoring company that offers a personal approach and a high level of service day in, day out. You want to work with a factor who earns your repeat factoring business and referrals. Let us help you find that receivables financing company!