What is Accounts Receivable Factoring?
Accounts receivable factoring is a form of financing where a business sells its accounts receivable to a financier known as a factor. Once a business sells its accounts receivable, or invoices, the business immediately receives cash for a percentage (70-85%) of the invoice. The remainder, less the financier’s fee, is paid to the seller when the full invoice payment is received and cleared by the factor.
“Factoring is a simple form of financing based on the accounts receivables of a business.”
The following example shows how simple factoring really is:
Consider a software development company who has just delivered $100,000 of software to a major computer manufacturer.
Instead of waiting the typical payment period, which could be 90 days or more, the software company could factor the invoice with Small Business Fundz and receive between $70,000 and $85,000 within 24 hours. This cash could then be used to fund a marketing campaign for a new software release, or simply to pay off some outstanding debt. As soon as the computer manufacturer remits payment, and the payment is cleared by Small Business Fundz, the software company will receive the remaining value of the invoice minus the factor’s fee.
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