Funding new business opportunities can be challenging for any small business. With capital tied up in operating expenses, how can a small business raise the funds it needs to take on new clients or support unexpected seasonal demands? One approach includes debt factoring through accounts receivable financing companies. These are companies that buy accounts receivables, turning them into much needed cash.
What is a Factoring Company and How Does It Help Small Businesses?
What is a factoring company? Whether you refer to these companies as factoring receivable companies or receivables financing companies, the concept is the same; they provide factoring services. Factoring is when a business sells outstanding invoices to a third party. When a business bills for a product or service, it often takes between 30-90 days for the company to get paid, especially if it is a business to business (B2B) transaction. Although the promise to pay is listed in the accounts receivable, the funds are not available for use.
If a company needs to increase cash flow without selling equity, factoring finance companies can help. Accounts receivable factoring companies can advance a small business anywhere from 80-95% of the outstanding invoice balance. This gives small businesses the money they need to fund growth or resolve short term cash problems.
Solutions Offered by Top Receivable Factoring Companies
Accounts receivable factoring is not the same as a loan. With AR factoring, an accounts receivable company is simply advancing funds already scheduled for collection. This means that the factoring agency is basing the advance on the credit history of the customer, not on the credit history of the business. Other benefits of receivable factoring include:
• An immediate boost in cash flow (often within 24 hours)
• Accounts receivable financing is not considered debt
• There are no restrictions on how the money can be used
• The line of credit is limited only by the amount of sales invoiced
• The factor company collects full payment for the outstanding invoices and pays the business the balance minus a fee
Working with a Factoring Broker
Which accounts receivable factoring services are right for you? Business factoring is a diverse industry. Factoring brokers can help you find the best factoring companies by leveraging their knowledge, experience, and networks within top factoring organizations. A broker can also help you save time and money. Factoring firms are trained to ask the right questions, so you won’t have to pay unexpected fees. A broker knows which factor companies specialize in your industry (manufacturing), a particular region (Florida factoring companies), or the typical funding levels of the factoring service. Some receivable factoring companies fund between $5,000-10,000 where others provide factoring solutions of $500,000-$1,000,000. As a small business owner, you want a firm who will represent your company well and who will hone in on the perfect factoring companies for your small business.
List of Largest Factoring Companies
Although a factoring broker can help you find the best factoring company to suite your needs, you may want to develop a basic understanding of business factoring services from some of the country’s top account receivable factoring companies. Here’s a list of factoring companies to get you started:
1st PMF Bancorp: Los Angeles, California
American Receivable: Dallas, Texas
Capital Plus: Knoxville, Tennessee
Charter Capital: Houston, Texas
Factor Funding: Houston, Texas
Interstate Capital: Santa Teresa, New Mexico
Paragon Financial Group: Miami, Florida
Riviera Finance: Atlanta, Georgia
RPM Capital Corp: Islandia, New York
RTS Financial: Lenexa, Kansas
Factoring Finance Rates & Terms
There is one important thing to keep in mind when dealing with factoring receivables companies. Unlike many financial services, the financing rate is not expressed as a percentage, but as a decimal. The average rate of 1.1 – 1.5 depends on your industry, how long you have been in business, your average monthly sales, and the stability of those sales. Initially the rate may seem high, however, receivables factoring companies charge the rate when the financing originates. It does not accrue over time as a loan does.