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How Does Account Receivable Financing Work?

Local companies need fast access to their regular payments. These payments include the outstanding balance owed by regular customers. By acquiring these payments at an earlier time, the company has access to their capital that could help them pay off debts quickly. They can also use this cash on hand for further investments or expansion. The following are the steps involved in account receivable financing.

A Review of the Invoices

The factoring agency will review all invoices that reflect all outstanding balances for the client company. They determine if they can collect these balances quickly based on each customer’s ability to pay in a timely manner. They will also review any balances that are late and have applicable late charges. After the complete assessment, the factoring agency determines what invoices they can purchase from the client company.

Calculating the Loan

The factoring agency will calculate the loan according to the capital owed to the company and all related fees. They can provide the client company with a balance that equates to 80 to 90{434fa3b8b0b36228ac3df8f875a61f462824630c3533ae1aff0b638aba1385d4} of the total value minus their collection fees. They present this value to the client company and wait for acceptance.

Management of Collections

Next, the factoring agency provides the client company with the loan based on the percentage chosen. They follow their own practices for collecting these balances from the client’s customers. The factoring agency can discuss these accounts with the clients and state that they are representing the client company. They can use any strategies according to collections laws to acquire these balances.

The Final Cut

Once the factoring company collects the final portion of the capital, they provide the client company with a remaining balance after deducting their fees. If they were unable to acquire any funds from a customer, the client company must provide them a repayment for any portion of the loan that included this account.

Local companies can acquire the funds owed to them by customers through invoice factoring. These practices help them to get these funds within a shorter period of time than if they waited for their customer’s to submit these payments. Companies that need the added assistance contact a factoring agency today.