What Is Receivables Financing?
Receivables financing allows businesses to get immediate cash by selling their outstanding invoices to a financing company at a discount.
Key Features
- Invoice Factoring: Sell outstanding invoices for immediate cash.
- No New Debt: Access cash without taking on additional loans.
- Fast Funding: Receive cash within 24 to 48 hours of invoice approval.
- Credit Check on Customers: Approval based on your customers credit, not yours.
- Flexible Volume: Factor as many or as few invoices as needed.
How Does Receivables Financing Work?
Receivables financing (or invoice factoring) works by selling your unpaid customer invoices to a factoring company. The factor advances you a percentage of the invoice value (typically 80 to 90 percent), collects payment from your customer, then sends you the remaining balance minus a fee.
Benefits
- Immediate cash flow without new debt
- Fast funding within 24 to 48 hours
- Approval based on customer credit
- Flexible use of invoices
- No collateral required on your end
Pros and Cons
Pros
- Quick access to working capital
- No new debt on your balance sheet
- Approval based on customer creditworthiness
- Flexible volume
Cons
- Factoring fees reduce profit margins
- Customers may learn you are factoring
- Not all invoices qualify
- Industry-specific requirements may apply
Who Is Receivables Financing Best For?
B2B businesses with outstanding invoices from creditworthy customers who need immediate cash flow.
How to Use
Submit outstanding invoices to the factoring company. Receive advance within 24 to 48 hours.
Frequently Asked Questions
What percentage do I receive upfront? Typically 80 to 90 percent of the invoice value.
What happens if my customer does not pay? Some factors offer non-recourse factoring that protects you from non-payment.
Individual results may vary.