Accounts receivable financing is a way for businesses to obtain the cash they need right away by selling unpaid invoices at face value to a third-party factoring organization. The invoice buyer typically holds back at least 10 percent of the total to cover its fees. It then becomes the owner of the invoice and bills your customer when it becomes due. For this reason, factoring companies rely on the creditworthiness of the customer with an outstanding invoice rather than your own company’s credit. It can make an excellent solution as long as you understand what to do and what not to do when choosing a factor.
There’s No Substitute for Research
You may have located multiple companies that offer accounts receivable financing, but that doesn’t mean each one is worth doing business with or reputable. We recommend that you start by researching several factoring companies according to your own criteria. For example, you may need a cash advance of a certain amount of desire to work with a factor that has plenty of experience with your industry. Be certain to read all customer reviews you can find on the company before agreeing to work together.
The best way to avoid a misunderstanding and potentially a legal hassle later is to make sure you read and understand all terms and conditions now. The company you select shouldn’t hesitate to send you a proposal that outlines the cost along with its current terms and conditions.
Things to Avoid
It’s understandable that you want to save money on factoring fees, but keep in mind that cheaper doesn’t always mean better. The cost should only be only one of several criteria you consider when choosing an accounts receivable financing company. Lastly, we advise not to sign anything you don’t understand and to never settle for a factoring company with a less than desirable reputation.
Ready to learn more about accounts receivable financing and other business financing options? Contact GP Solutions today.