Selling Accounts Receivables to Finance Your Business

Account receivable vector concept: Business team checking account receivable data on the laptop while looking with magnifying glass

Access Immediate Working Capital Without Adding Debt

In today’s economic climate, it can be a struggle to acquire the necessary working capital to bolster a healthy cash flow or to take advantage of new business opportunities for expansion. Traditional methods of acquiring capital including bank loans and lines of credit can be insufficient, expensive, or simply not available. A company in this situation has an alternate financing solution to consider: selling the company’s outstanding invoices or accounts receivable to a factoring company.

As traditional financing methods become harder to attain, the popularity of accounts receivable factoring increases. Accounts receivable financing is not a new tool. It has existed as long as the custom of extending net terms. In this arrangement, a funding source known as “the factor” assumes the risk of outstanding accounts receivable and provides an advance of funds available immediately to the client company.

A factoring company will look at who your customers are to assess if there is a risk or if you have reasonable terms set-up. A business with a recurring set of invoices with reliable customers paying, is an excellent candidate for invoice factoring.

Related: 10 Considerations When Selecting the Best Factoring Company for Your Business

How Accounts Receivable Funding Works

Accounts receivable financing, also known as invoice factoring, allows your business to sell open invoices to a factoring company. Selling your accounts receivable is a quicker and simpler process than a conventional business loan, so your business can get access to urgently needed cash in a much shorter period of time than from a bank. There are a few variables that effect the process of financing your company’s receivables you should understand if you are interested in this funding solution. Following is an overview of the application and approval process and how factoring rates are determined when your business decides to sell open invoices.

1. What are the Rates?

We will determine and propose the factoring rate and advance rate for your business, which gives you a fuller picture before you start the application process. Universal Funding will base your rates on a few variables:

  • Your sales volume and invoice amounts
  • Trends in your customer payment cycles
  • Credit standing of your customers
  • Current climate of your industry

2. What Information do You Need to Apply?

Universal Funding has a one-page application that is fast and easy to complete. In addition to the application, we also request that you provide:

  • Your company’s most recent accounts payable and accounts receivable aging reports
  • A sample invoice
  • Your company’s previous year’s taxes

3. What is the Approval Process?

Approval for factoring is much faster than a bank loan since the finance company is purchasing an asset, your invoices, instead of structuring a loan. Your invoices and the customers associated with them are assessed quickly.

There are a few other elements we will need to consider for specific cases, but they do not necessarily mean your business cannot sell invoices. If you have tax issues, little or no credit history, or if a lender already has the right to your accounts receivable as collateral, you still can be approved for invoice factoring. Since our underwriting department is in-house, the application process is swiftly moved to the Board for review. Once approved, you will also need to show business registration papers, such as your Articles of Incorporation or your DBA filing.

Related: Factoring or Term Loan—Which is Best for Your Business?

What Are the Concerns of Accounts Receivable Financing?

Some companies are wary of invoice factoring because they lose control of some of the collection process. One of the myths about invoicing factoring is that a business somehow loses control of its relationship with customers. However, you are still firmly in the driving seat when you factor your invoices.

The best factoring companies do not employ heavy-handed collection techniques. And they communicate with you before escalating collections.

Other than managing your accounts receivable, your factoring company will have no contact with your customers. So, you retain complete control over managing customer relationships.

After you send out an invoice for goods or services sold, Universal Funding sends bi-monthly statements and will work to protect the relationship with your customers. We know that if you don’t get paid, we don’t get paid, so it is in our best interest to maintain a respectful relationship with your customers.

Some factoring companies may not accept certain invoices because of the lack of credit worthiness of the customer, this does not take the decision out of the hands of the client who is still free to deal with high-risk customers outside of the factoring process.

Another concern is that factor providers are not necessarily collection agencies. Some factoring companies do not assume the responsibility to collect for bad debts. However, with a credit-healthy customer base, a company can avoid having to deal with this situation. Universal Funding will provide screening for any new clients to make you aware of any potential risks of taking on a new client.

Related: How Will Invoice Factoring Affect Your Customers?

The Bottom Line

For those looking for an alternative way to fund business operations or expand your business, selling invoices for cash provides a way for companies access immediate working capital. The process is fast and easy and doesn’t require you to have great business plan or personal credit or have a specified time in business. Accounts receivable financing is not a loan. It is a sales transaction that allows you to sell your invoices in exchange for instant funding. There are no restrictions on how you choose to use the money and there is no repayment. This means you have the freedom to use the funds for whatever your business needs: purchasing new equipment, fulfilling large orders, or just covering day to day expenses and not have to worry about adding new obligations to your monthly operating budget.

Related: Is Invoice Factoring Right for Your Business?

Your Questions Answered Quickly

Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.

About Universal Funding

Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.