There has been considerable misunderstanding between factoring and accounts receivable financing, in terms of exactly what happens with each business transaction, and even whether or not they’re the same thing. Despite the fact that many businessmen consider them to be more or less equivalent types of transactions, there are some definite differences between these two arrangements.
With factoring, any company will usually be obliged to sell all of its invoices for the month to a factor, and the amounts on these invoices would then be collected by the factor. Your company would receive an amount of cash perhaps 80 to 85% of the value of the invoices, and the remainder would be paid to you after the invoice amounts were collected. Any factoring fees would of course be subtracted from that final amount, so the factor could be paid for the service provided.
Accounts receivable financing
In this transaction, your company would have the option of selling only the largest invoices involving the most reliable customers to an alternative lender. That could put the most amount of money in your hands very quickly. Financing rates are generally much more favorable with accounts receivable financing, because there is more surety involved for the lender.
Another reason why financing rates tend to be lower with A/R financing is that the selling company will generally have chosen the most credit-worthy customers for inclusion in the transaction. That means there will be far fewer late payments and non-payments, so the vendor is less at risk for collecting invoice amounts. Of the two types of transactions, A/R financing is considered to be the more flexible and the more competitive, given conditions in today’s finance markets.
Is your company interested in accounts receivable financing?
If so, we may be able to accommodate you at First Source Capital. Contact us today, so we can review some options with you that may secure the funding you have been looking for.