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What is Invoice Factoring?

The Code of Hammurabi, written in 1792 BC, has the earliest record of invoice factoring, the Roman industry of buying and selling promissory notes. The American Colonies were built on the back of factors, advancing monies for shipments headed back to Europe.

Factoring is the sale of the right to collect cash owed on your open invoices. Most companies will use a factoring company when they need cash quickly, or when their customers are slow to pay., limiting their cash flow. Small, medium and even large, publicly traded companies often factor their receivables, which creates a consistent cash flow, allowing allowing them to continue to increase business.

Today’s business environment is fast paced with rising costs and supply shortages,. Factoring gives a business access to cash up front, and quickly ,which is invaluable to the business.. A business owner can sell their invoices and get immediate cash to cover operational and marketing costs and. continue growth with a consistent cash flow.

When a business owner factors their invoices, it is not a loan. It is a sale of their assets. For a reasonable discount fee, the factor will buy the invoice. The usual advance rate is 80%-90%, they receive the balance, less the agreed upon fee once the invoice is paid by the customer. One of the advantages factoring has over other types of financing is that the owner’s personal credit is not considered, the factoring company is qualifying the credit of their customers, rather than the owner. A variety of different industries benefit from factoring, including:

  • Staffing
  • Manufacturing
  • Distribution
  • Oil & Gas Service Companies
  • Telecommunications
  • Consulting Firms
  • Service Providers

Business owners that have large payroll expenses know the importance of having ready cash. Selling their invoices to a factoring company ensures that payroll and other expenses can be met consistently, and, continue to increase their customer base. New business owners also turn to factoring when they do not have a track record that is required for traditional bank loans. Some business owners who need financing but don’t want to incur debt or sell equity, also turn to factoring.

It seems as long as there has been commerce, the need for business owners to speed up their cash flow has existed. Factoring proves to a be a fast and efficient way to provide the cash business owners need to succeed.

American Receivable has a FIVE STAR rating. Call today to learn how our team can help you. Call today or complete our quick online application form to find out how American Receivable can put your company on the road to success.


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