How Factoring Has Evolved in the Commercial Financing
Factoring, also called accounts receivable financing, is one of the oldest forms of financing in the world. In antiquity, lenders would offer money to merchants to help them fund their voyages. It continues to play an important role in the commercial financing world. Of course, the modern solutions are faster and more helpful than they were thousands of years ago.
How It Works
Financing your accounts receivable is a way to get cash into your business when you need it most. The factor gives you money for your outstanding invoices (at a slight discount) then collects the balance from your customers as it comes due. Your business gets money immediately to help cover expenses and maintain good cash flow.
This was created out of necessity. Many merchants would need to pay for supplies, labor and other costs long before reaping the benefits of their wares. This has continued into the present. For some time, the garment industry used this form of financing heavily to allow manufacturers to pay suppliers.
Necessity continues to drive AR financing. As lenders have gotten stricter with their requirements on other loans, borrowers have turned to this more reliable form of financing to ensure their cash flow.
Modern Financing Is Faster and Better
Factors can provide money to businesses faster and with better terms than ever before. Thanks to new technologies, factors can better understand the financial situations of both their clients and their clients’ customers. Therefore, they can buy invoices more freely. Additionally, they can transfer money within a matter of days or even hours to their clients.
This helps to make the experience of AR financing more valuable for the borrowers. Additionally, the internet has given borrowers access to more potential factors.
Cash (Flow) Rules Everything Around Me
Cash flow is a top priority for all businesses. If you do not ensure that your business consistently has enough cash coming in to cover all expenses, you will be heading for trouble rapidly. Working with an invoice factor is one of the best ways to protect your cash flow. It ensures that you always have cash rather than accounts receivable, maximizing your liquidity.
Invoice factoring may be the key to your lasting success. Learn more about it today. It has helped many businesses to thrive and focus on bringing in new orders rather than cash flow. Imagine what your business could accomplish with a steady supply of capital.