There comes a time in every business owner’s life where they need more capital in order to successfully grow or maintain the status quo of their daily operations. Regardless of the reason that a business owner finds themselves in need of extra money, it is important to remember that there are ways to gain access to working capital without having to sell shares in the business. 

One of the best ways to do so is to partner with a company that can provide you with accounts receivable factoring. As a company that helps small-to-medium size businesses in New York City and the greater Tri-State area gain access to working capital, our team recommends that businesses seeking extra working capital consider using accounts receivable factoring. 

But what are the 4 situations that accounts receivable factoring is best used? Continue reading to find out. 

How Does Accounts Receivable Factoring Work?

Before we begin discussing how accounts receivable can best help small-to-medium-sized businesses access more working capital, it is important to discuss how accounts receivable factoring works.  

Picture this: John Doe owns a small business in the New York City area that specializes in transporting large items. Since the inception of his company a year prior, John has built a large book of clients. As John’s business starts to see some success, he finds a unique opportunity for growth — but that will require him to purchase new vehicles and hire more employees.

Sadly, John does not have the working capital to make that possible, and because his business is still relatively new, his line of credit will not be able to cover his needs. To make it even worse, the revenue that he is currently generating is more than enough to help fund his business growth — with the only issue being that he offers extended payment terms of 60 or 90 days to his clients. 

This is where accounts receivable factoring comes in. Once John realized that he needed help, he got in touch with a local capital group to discuss his options. One of the first options pitched to him was accounts receivable factoring. 

By partnering with a capital group, John could have his invoices bought — giving him the capital that he needs when he needs it. 

Accounts receivable factoring, in its simplest definition, is when a factoring company buys your invoices before the client pays you back. After paying you the amount owed by the customer, the factoring company will own the invoice and thus be responsible for collecting the debt. 

So what are the 4 reasons that your small-to-medium sized business should consider accounts receivable factoring? 

Reason 1: You Will Get Capital Faster

As we outlined in the hypothetical example above, one of the best reasons to use accounts receivable factoring is to gain access to capital that is tied up in your invoices faster. Sure, there are other ways to access capital, but the paperwork and process associated with applying for a loan can be cumbersome. 

When you work with a factoring company, however, each transaction is handled effortlessly. Being that factoring companies have experience buying invoices from growing businesses, the factoring process is incredibly quick — allowing you to get the money when you need it. 

Reason 2: Your Invoices Act As Collateral

Another reason we recommend that businesses use accounts receivable factoring instead of applying for a business loan is collateral. Most growing businesses are not approved for the amounts that they need because they do not have the proper collateral to offer to the bank. 

When you decide to use accounts receivable factoring as your source of working capital, the invoices themselves are the collateral. Meaning that you don’t have to put other valuable assets as collateral. An additional benefit of using invoice factoring is that the factoring company will be more interested in your customer’s credit, not yours.

Reason 3: Accounts Receivable Factoring Can Keep You From Accruing More Debt

When it comes to starting a business, it is almost guaranteed that you will build up some debt — unless you have an unrealistically large amount of seed money, that its. That being said, there are plenty of things that new business owners can do to take action towards minimizing the debts that they will accrue. 

When you take on a business loan, you are essentially taking on new debt. While it might seem necessary for you to do so, there are ways around it. And factoring your invoices with accounts receivable financing is one of them. 

With accounts receivable financing, you can get working capital by selling your invoice at a discount that does not leave you in debt. Being that once the transaction is handled, you have no more responsibility. 

Reason 4: Accounts Receivable Financing Is Based On Your Customer’s Credit, Not Yours

When you have a small-to-medium-sized business and have poor credit, it can seem impossible to get funding. A bank will look at your loan application and deny it right away because of the risk that it holds.

With accounts receivable factoring, the financial institution is more interested in your customer’s credit than your own. Being that if they buy the invoice from you it will be up to your customer to pay it. That being said, a factoring company will consider the risk of working with your business before agreeing to purchase your invoices. 

For Accounts Receivable Factoring, Think The Hedaya Capital Group

If you are small-to-medium sized businesses in the New York City or Tri-State area, we urge you to get in touch with our team today. 

For years, we have been helping businesses acquire the capital that they need to grow. Whether it be through business loans, letters of credit, or factoring, our goal is to help you achieve sustainable and safe growth for your company. Offering a number of different services to multiple industries, our team is here to provide you with financial solutions to your unique issues. 

So what are you waiting for? Contact us today to discuss options for your business. We look forward to working with you and your business!