The factoring of accounts receivable is one of the core services we offer. But many people don’t understand the world of receivables factoring (as it’s also known).

So how, exactly, does factoring receivables work? And more importantly, how can the factoring of receivables help you sustain your business with much-needed working capital?

Let’s start this lesson by examining the two terms in use here:

• Factoring - The mathematical definition of factoring is breaking down numbers into all of their factors. But we’re talking about business here, not math. So here’s a basic definition of factoring in this context: The purchase of debts owed (receivables) by a third party, in exchange for immediate payment (cash flow) of a percentage of that debt.
• Receivables - As you might have imagined, the receivables part of the term refers to accounts receivable, which is money owed to a business by its customers. Invoices, for example, are a primary component of receivables.

So let’s put these two definitions together to better understand how receivables factoring works:

If a third party purchases your outstanding invoices and provides you with a percentage of the invoice balance in the form of immediate cash flow … then that third party is factoring receivables on your behalf. The third party, of course, would be a factoring company like Far West Capital.

Now that you have a better grasp of receivables factoring you can probably see the benefits of such a process, which come in the form of cash flow / working capital for the business who sells the invoices. If you’d like to learn more about this subject, or the factoring services that we offer, please contact a representative today.

Related articles:

• Invoice Factoring for Cash Flow
• Factoring Companies Explained

Just a quick post to announce the latest addition to our website. We have launched an email newsletter to help keep our customers (and potential customers) informed on new products, services and the like offered by Far West Capital.

We will also be publishing plenty of helpful information through the newsletter, such as business finance tips, lessons on working capital, and more.

If you’d like to sign up for the working capital newsletter, you can do so right here. It’s quick and easy. Just enter your name and email address … that’s it.

This newsletter will help you understand the many ways that working capital financing can help you grow your business, so sign up today!

What is a working capital loan and how can it help your business? This is a common question among business owners, especially those who own small businesses or startups. After all, working capital is a big concern for businesses with limited financial reach (either due to their size or their business model).

So let’s take a closer look at working capital loans and how they work.

How a Working Capital Loan Works

Let’s start with a quick definition. Working capital refers to the money needed to operate a business from day to day. You can reverse the wording and see how it makes sense — it is the capital needed to keep your business working, day after day.

So by extension, a working capital loan is any loan designed to provide a business with the capital needed to keep things moving. Regardless of where the loan comes from (a bank, a financing company, etc.), the result of the loan is the same. The business owner now has additional working capital with which to operate his business.

Types of Working Capital Loans

It’s hard to generalize loans in general, and that applies to the working capital variety as well. These types of loans come with a wide variety of terms and requirements. So for now, let’s just simplify the world of working capital loans into two main categories — (1) traditional style loans and (2) accounts receivable financing.

• Traditional style loans – Many banks offer loans designed with small businesses in mind. These loans can provide quick capital for businesses in need, thus they are a form of working capital loan (also referred to as small business loans). These types of loans are made based on the past history of the company and can make sense when your business is not growing. However, they may limit your ability to access additional capital in a growth mode.
• Accounts receivable financing — This type of financing is often provided by factoring companies like Far West Capital. Here, the business owner transfers invoices / accounts receivable to a factoring company who will then advance the business owner a percentage of the invoice amount. This type of financing goes by many names — invoice factoring, working capital financing, accounts receivable factoring etc. This type of business financing is meant for companies that are growing and have a need for capital above and beyond what a traditional working capital loan can provide.

Despite the source of the loan or the terms that come with it, the end-goal of all working capital loans is the same: to provide the business owner with additional cash flow to keep his or her business running.

If you are seeking the latter form of financing mentioned above, be sure to contact us about our working capital financing services.