Owning and managing a modern-day business is no small feat. It takes countless parts and pieces coming together in just the right way, a careful approach to organization — and cash flow management that ensures you have the proper funds in place to cover purchases, bill payments and payroll. Factoring services can serve as an invaluable financial tool to help keep businesses funded and moving successfully forward.   

In this blog post, your Central Bank team will explore the ins and outs of factoring services, such as those offered by our affiliate company, Advantage Business Capital. Not only will we take a look at what they are and how they work, but we’ll cover the benefits they afford a business — and how to go about selecting the right factoring company. Read on for insights centered around you.

What is Accounts Receivable Financing?
Factoring services, also known as accounts receivable financing, refers to a financial arrangement during which a business sells its accounts receivable (or unpaid invoices) at a discount to a third-party factoring company. In exchange, the factoring company advances up to 90% of funding for verifiable invoices back to the company right away, enabling it to meet its immediate financial obligations. The remaining balance, minus the agreed-upon discount, is paid once the factoring company receives payment from the client.

Accounts receivable financing is a helpful option for businesses looking to build working capital without taking on the burden of added debt or seeking out an equity partner. It can also serve as an additional source of income in instances where factoring services coincide with lines of credit already in place at your bank.

What Benefits Does a Factoring Service Offer Companies?
Incorporating a factoring service into a company’s toolkit is all about freeing up funds so they’re available when needed — and placing your business on firmer all-around financial standing. Here are a few of the bigger benefits that come into play with accounts receivable financing.

• Improved Cash Flow: Factoring services convert accounts receivable into immediate funds. This influx of working capital can be used for a number of purposes, such as paying suppliers, meeting payroll, purchasing tools and equipment or simply keeping the business running smoothly.

• Flexibility and Speed: Unlike some loan processes, factoring services do not require collateral or a lengthy application and approval process. Instead, factoring companies evaluate the creditworthiness of a business's customers. This makes factoring an easy, accessible option for startups or businesses with limited credit history. And because the application and payment processes are typically quick, businesses gain access to needed funds in a timely manner.

• Reduction in Bad Debt: Factoring companies often include credit analysis as part of their services, which can help minimize the risk of non-payment by customers. By leveraging a factoring company’s expertise in credit assessment, businesses can make informed decisions about extending credit to customers — and reduce the likelihood that they’ll take on work with a company that’s unlikely to pay them back.

• Outsourcing Accounts Receivable Management: Factoring companies take on the payment collection process. This extends to following up on payments, sending reminders and pursuing collections, if necessary. By allowing the factoring company to leverage its expertise and systems to efficiently manage accounts receivable, businesses can return focus to their core operations.

Spotting Reputable Accounts Receivable Financing Companies
As with any working relationship, it’s important to find a partner you can trust with your factoring services. Here are some factors to consider when assessing potential accounts receivable financing companies.

• Reputation and Experience: Look for a factoring company that’s known to do quality work, and that has a track record of providing reliable services. Evaluate their websites, look into online reviews and seek out client testimonials to gauge their credibility.

• Transparency and Clear Terms: Pay attention to the terms and conditions of your potential factoring agreement. Ensure that the fees, discount rates and any additional charges are communicated — and if you have questions, ask. A trustworthy factoring company will provide clear documentation surrounding your agreement and will make every effort possible to ensure you fully understand both the service and its terms.

• Customer Support: Look for indicators regarding the level of customer support the factoring company offers. Consider issues such as responsiveness, customer service lines and the availability of dedicated account managers who can address your concerns promptly. Online reviews or discussions with colleagues who have done business with your potential company can shed light on this aspect of things.

• Flexibility and Scalability: As your business evolves, your financing needs may change. You’ll want to select a factoring company that can adapt to your requirements and scale solutions accordingly. Flexibility in funding options, contract terms and the ability to factor specific invoices as needed can be advantageous.

Central Bank and Advantage Business Capital Are Here to Help
Factoring services can play a key role in keeping funds available to fuel everyday operations and a company’s larger purchases, too. And your friends at Central Bank and Advantage Business Capital can help.

Advantage offers a wide range of offerings aimed at helping companies grow — and a list of benefits that’s just as long. These include:

• No Application Fee

• No Minimum Funding Requirements or Fees

• Same-Day Funding Capabilities

• Funding up to 90% of Invoice Amount

• Twice Weekly Funding of the Balance, Minus Fees (Reserves)

• Dedicated Account Manager & Access to Executive Management Team

• Online Reporting

• Purchase Order/Inventory/Equipment Financing Capabilities

• Borrowing Base Structure for Qualified Customers

• Access to Central Bank Products & Services

If you have questions about any of the above, or if you’re interested in learning more about factoring services through Advantage Business Capital, visit the Advantage website or call them at 832.485.2385. Of course, your Central Bank team is also glad to assist. Reach out at any time to get your factoring services started on the right foot.