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What Is Accounts Receivable Factoring?
In accounts receivable factoring, a business sells its accounts receivables to a factoring company at a discount to unlock instant cash flow. It is another name for invoice factoring or debt factoring.
How Does Accounts Receivable Factoring Work?
Accounts receivable factoring works in 3 simple steps:
Sell to your customers: Sell your goods and services to customers and generate invoices.
Sell your invoices: Sell your invoices (account receivables) to a factoring company that pays you up to 90% of the invoice value up-front. The remaining amount is released when the factoring company receives full account receivables payment from customers.
Use money to fuel growth: Use the money to fuel your business growth. Fix cash flow issues, buy new equipment, expand operations, or invest in human capital.
Other types of factoring:
Spot Factoring enables a business to sell individual invoices selectively. This type of factoring allows businesses to choose which invoices to factor based on their cash flow needs. It is also known as single invoice factoring or selective invoice factoring.
Debt factoring, also known as receivables factoring or invoice factoring, involves a business selling its accounts receivable (unpaid invoices) to a third party. The factoring company buys these invoices at a discounted rate, providing immediate cash to the business.
In recourse factoring, the business that sells its invoices to the factoring company remains liable if the customer fails to pay the invoice. If the customer defaults, the business must buy back the invoice or replace it with another. The risk of non-payment remains with the business.
With non-recourse factoring, the factor assumes the risk of non-payment by the customer. If the customer fails to pay due to insolvency or credit issues, the factor absorbs the loss, and the business is not responsible for repayment.
This term is used interchangeably with accounts receivable factoring. It involves the business selling its unpaid invoices (account receivables) to a third party at a discounted rate to receive early payments. Upon receiving the invoices, the factoring company releases the bulk of payments, usually up to 90% of the collective invoice value). The rest is paid (after fee deduction) when the payment is collected in full from the end customers.
Sectors That Accounts Receivable Factoring Covers
Retail
Mechanics
Restaurants
Bars & Clubs
Leisure Clubs
Plus Many More
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What Can You Do With Accounts Receivable Factoring?
Invest in stock, HR, & equipment
Access capital for essential business needs.
Focus on High-Value Operations
Free up time by outsourcing collections.
Improve Cash Flow
Convert unpaid invoices into immediate funds.
Fuel Growth
Use funds to expand, and invest in stock, HR, or equipment.
Accounts Receivables Factoring FAQs
Accounts receivable factoring is another name for invoice factoring. It involves a business selling its accounts receivable (or invoices) to a third party at a discount. The factoring company buys these invoices at a discounted rate, providing immediate cash to the business.
When it comes to accounts receivables factoring, ComparedBusiness is here to help you save time and money. You can easily submit your business requirements through ComparedBusiness in under 2 minutes.
You will get quotes from top Account Receivables Factoring companies delivered to your email. You can then compare and choose the most suitable option per your business needs.
Account receivables factoring can be a suitable option for small businesses with a monthly turnover of over £4,000. It is one of the most reliable ways to quickly inject cash into the business without taking a traditional bank loan.