Net payment terms are an indispensable part of the accounts receivable world. However, the net terms can severely impact cash flow. When a company is low on cash flow and needs to increase their working capital, invoice factoring can be a terrific solution. It allows companies to take advantage of asset based financing. This financing method is available to companies of all sizes, whether the company is mature or at the startup stage as long as the business invoices other businesses for the goods or services. It offers many important benefits, including:
- Minimized bad debts
- Reduced operating expenses
- Expanded working capital
- Improved cash flow
- Improved management information
However, once a company decides to take advantage of factoring, it must integrate the decision into its day-to-day operational processes. Following are some important points for invoice factoring accounting.
Most firms, particularly those with an accounts receivable department, use the accrual accounting method for records, taxes, and business analysis. The first point of invoice factoring is that the accrual period follows the factoring timetable, as opposed to the weighted calculation of the individual accounts and the net terms. This may appear to add another layer of complexity to the accounting process. However, the growing use of factoring in modern businesses has motivated the accounting industry to create the proper processes for handling factoring in a straightforward and audit-proof manner.
Software Smooths the Process
As the accounting industry has responded to the increased use of factoring, accounting software has grown to meet the demand as well. Companies that already have an industry-standard accounting software package in place will likely find that a factoring solution is in place. To take advantage of these features, it is essential that the IT department keep the accounting software up to date.
For companies without a software solution, the adoption of factoring may be the perfect impetus to choose a good package. Software providers offer a range of products for companies of all sizes and budgets. We have a provide a video on YouTube that shows how to account for factoring in QuickBooks, however, if you use another accounting software the steps are easy to follow.
Let’s Get Started
With all of the information and tools available, invoice factoring may seem like a very attractive solution to you for your company. Be sure to contact us at Universal Funding Corporation by completing our rate form today and let us see how we can help.