Which Companies Benefit From Factoring?
One of the ways you can get paid quickly for goods and services, while still giving your clients up to ninety days to pay for them, is through accounts receivable financing or factoring. This is the process of selling your invoices to a factor, getting an advance on the funds, and then repaying the advance when the customer pays on the invoice. Sometimes clients pay you and other times they pay the factor, depending on whether you are selling the invoices outright or just using them as collateral. More businesses can benefit from this service than you might initially think, and it is good to know whether yours is one of them.
Companies Using Accounts Receivables
Companies in all industries using accounts receivables or monthly contracts can use a factor for a cash advance. These include temp agencies, trucking companies and service providers which must pay for personnel, supplies and equipment while their clients pay on a monthly contract. Using AR financing can help ease cash flow until you can stagger monthly incoming payments to match your bills, to fuel the company over slow periods and much more.
Industries With Large Projects
Factoring is especially useful in industries such as construction and manufacturing where large invoices need to be filled before payment can be received. Your company will need to stock up on supplies, pay for labor or even buy more equipment to start the project and you cannot always count on the income from the last project to cover new and bigger ones. Construction companies, particularly those working on government contracts, may need to purchase permits and hire laborers before seeing any reimbursement from the clients and having an advance from a factor can ease the financial burden.
Facilities Billing Multiple Parties Per Transaction
Facilities such as hospitals, nursing homes and clinics rely on billing both the insurance companies and the patients for each transaction, which can take weeks of paperwork and approval before the bill is paid. When working with a factor for billing, these facilities can get the funding they need for utilities, staffing costs and supplies while the insurance companies are deciding whether to approve the charges, while disputes are settled or while the patient is using a payment plan.
Factoring is a useful way to smooth cash flow during slow periods, stock up on supplies for a large project or pay the bills while waiting for insurance companies to pay on an invoice. Companies in almost any industry can use AR financing, but they are most useful for those with invoices, large projects or complex billing systems.
