Are we in a recession or aren’t we? Depending on whom you ask, you’ll get several different answers to this question. The White House calls it “tough times” while many economists call it a recession.

Regardless of the semantics, one thing is certain. Business financing is getting harder to come by, and will likely remain that way until the economy starts to swing upward again.

As a result of this, many business owners are looking into alternative forms of business financing — “alternative” meaning ways to obtain business financing aside from traditional lending channels.

Cash flow factoring is one of these alternate forms of business financing, and it is being used by an increasing number of business owners who have accounts receivable operations. Actually, cash flow factoring goes by several names:

• Accounts Receivable Financing
• Small Business Factoring
• Business Invoice Funding
• Invoice Factoring
• And so on…

But regardless of the terminology used to describe this financing model, the principles behind cash flow factoring remain the same. Essentially, you are converting invoices or other types of assets into much-needed cash flow through a process known as factoring. Hence, when you put the pieces together you get cash flow factoring … and it’s something that a lot of business owners rely on these days.

How do you know if cash flow factoring might be useful for your business? Here are some of the basic criteria:

• Your business has some form of accounts receivable / invoicing process in place.
• Your business is in a growth mode.
• You need working capital to continue your growth.

Of course, there are more considerations than these when evaluating cash flow factoring as a potential financing tool. But this gives you a general idea of the types of businesses who can benefit from cash flow factoring services (like the ones that we provide).

If you would like to learn more about this topic, or about the cash flow factoring services that we offer, please contact a representative.

Accounts receivable (AR) financing is one of the key services that we provide to our clients. And while it’s not for every business, it can certainly benefit the business owner who wants to turn accounts receivable (invoices) into work capital.

AR Financing Benefits

Here are some of the primary reasons businesses use accounts receivable financing to sustain their growth:

• It generates working capital – The primary purpose of accounts receivable financing is to convert your accounts receivable into capital that you can use for a variety of purposes, such as material / supply purchases. For companies with a lot of capital tied up in their invoices, AR financing can help liquidate that capital.
• It’s a quick path to financing — In most cases, you can secure capital through AR financing / factoring without having to provide as much documentation as you would provide for a traditional small business loan. Thus, it’s a quicker path to much-needed cash flow.
• It lifts a collection burden – When you transfer invoices to a factoring company (which is the most common form of accounts receivable financing), it allows you to refocus your attention on other things that are important to your business. The customers owing the invoices would now send payments to the factoring company that assumed your invoices. So in this regard, accounts receivable financing can reduce some of the collection burden from your company.

Is AR financing right for your business? Well, that depends on several factors. But if you operate accounts receivable as part of your business model, and you need a way to convert some of your invoices into working capital, then accounts receivable financing could be exactly what you need.

If you would like to learn more about the AR financing services of Far West Capital, please contact us at your convenience.

Related articles:

• Factoring Receivables for Cash
• Factoring Companies Explained

Article Summary: An explanation of factoring for small business owners, and how it relates to the current state of the economy.

The financial landscape continues to change in the United States, with tighter credit and lending restrictions spawned by the mortgage breakdown. We have already outlined the history of these changes in our “Ripple Effect” special report (see blog sidebar below). So I won’t belabor that point here.

Instead, I’d like to use this blog post to explain how the economic changes mentioned above have increased the need for alternative financing, such as small business factoring services.

How Factoring Fuels Small Business Growth

By way of definition, factoring is a process through which small business owners can convert accounts receivable (invoices) into much-needed working capital. Thus it is also referred to as invoice factoring for small businesses.

Let’s say I operate a small business that uses an invoicing system to bill clients. At any given time, I have a good deal of capital in the form of outstanding invoices. These invoices represent future revenue, but they do not help me much here in the present.

Now let’s imagine that April is going to be a big month for material / supply purchases, but much of my capital is tied up with invoices. This is a scenario where a small business factoring company can help me transform my invoices into working capital … capital I can put toward those necessary purchases next month.

So as the business owner, I would work with a factoring company to transfer some (or all) of my invoices over to them. The factoring company would advance me a portion of the invoice total — let’s say 80% for this example.

Now I’ve converted 80% of my outstanding invoices into capital I can use to make my supply purchases. My customers who owe the invoices will now send their payments to the factoring company, instead of sending them to me. This is the crux of small business factoring and how it can benefit your growing business.

A Much Needed Tool in Today’s Economy

Our current economic troubles only make this kind of financing all the more important. As federal regulators increase their scrutiny of lenders, the number of financing options for small businesses declines. Thus, there is more need for alternate financing methods such as invoice factoring and other forms of working capital finance.

If you’d like to learn more about this subject, you should check out “The Ripple Effect” — our special report on the state of the economy and how it affects business finance. You can download your copy simply by subscribing to our email newsletter.

If you think small business factoring might be what your company needs, and you would like to learn more about it, please contact us today.

Does your business have outstanding invoices on a regular basis? If so, you could turn your invoices into working capital through a process known as accounts receivable financing (or A/R financing for short).

Here’s the process of business invoice funding in a nutshell:

Invoices are the primary form of accounts receivable for most businesses. These invoice represent future capital, but they are obviously not liquid in the present. You cannot give your invoices to a supplier to pay for supplies. Nor can you pay your employees or contractors with invoices.

But you can convert your business invoices into usable funds through the process of A/R financing. By transferring your invoices to a factoring company such as Far West Capital, you can receive a percentage of those invoices up front in the form of much-needed cash flow … money you can use to purchase supplies, pay employees, or otherwise expand your business.

Because of its usefulness, business invoice funding is a common type of A/R financing among small businesses that operate some form of invoicing model. Without the services of an invoice factoring company, outstanding invoices only represent future capital — not capital in the present.

But with the services of a factoring company, your business invoices can become working capital in the present.

Questions About A/R Financing

If invoices are a big part of your business model, and you’d like to learn more about A/R financing tools to convert those invoices into capital, please contact a representative of Far West Capital today!

Related articles:

• Factoring Receivables for Cash
• Factoring Companies Explained

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

Factoring of accounts receivable (such as invoices) is one of the core services we provide at Far West Capital. But invoice factoring is also a frequently misunderstood component of small business financing, so we thought a brief explanation was in order.

(You may also wish to read our hypothetical factoring scenario using a fictitious trucking company.)

Factoring Invoices - The Players

Basically, there are three primary parties involved in the process of factoring invoices.

1. The Invoicing Company - This is the business who has accounts receivable in the form of invoices and would like to turn those invoices into cash flow / working capital. For simplicity, we will refer to the invoicing company as “Acme Corp.”
2. The Invoiced Customer - This is the customer who has been invoiced by Acme Corp and is thus part of Acme’s overall accounts receivable. Acme Corp actually has quite a few customers, so let’s refer to them as Customer A, Customer B, Customer C, etc.
3. The Invoice Factoring Company - This is the financing company that specializes in providing working capital through such services as invoice factoring. This is where Acme Corp will go to try and convert their invoices into working capital, a.k.a. cash flow. Let’s refer to the factoring company as Far West Capital — naturally!

Invoice Factoring - The Process

So now we have a company who issues invoices (Acme Corp), a group of customers who owe these invoices, and a company who specializes in factoring invoices for working capital.

Let’s further imagine — realistically so — that Acme Corp needs to leverage their accounts receivable in order to procure some working capital for their day-to-day operation. So Acme gets in touch with Far West Capital to talk about some financing solutions based on their current accounts receivable. Long story short, Far West takes on some of Acme’s invoices and advances them 80 or 90 percent of the invoice totals.

As a result, Acme Corp has the working capital they need to keep their operations rolling along. And Customer A, Customer B, and the rest of Acme’s accounts will now send their invoice payments to Far West Capital (instead of sending them to Acme).

Here’s an illustration that reiterates the process we just discussed:

Questions for Far West Capital?

This is a somewhat simplified example of the invoice factoring process, but it accounts for most of the major steps involved. If you have more in-depth questions about this process, or if you’d like to talk about the factoring services we provide, please contact a representative today.

Many business owners encounter the term “factoring” (or the longer phrase “accounts receivable factoring”) when researching financing options for their company. These industry terms often cause confusion, or else conjure images of complex mathematical processes.

But in truth, factoring — or accounts receivable factoring – is not hard to understand once you have somebody explain the process. In this article we will do just that. We will examine the basic financing process used by most factoring companies.

Accounts Receivable Factoring - By the Numbers

Let’s look at this process one step at a time, using a fictitious (but very realistic) example of Acme Trucking Company. Let’s say the owner of Acme Trucking needs some additional cash flow to pay its drivers and fuel costs.

Like many trucking businesses, Acme Trucking operates heavily on an invoice / accounts receivable basis. They offer terms to many customers, who will then pay the invoice after a job is done.

But as with many small to medium-sized businesses, this type of accounts receivable system can occasionally put a strain on the working capital of the company who uses it. In other words, it can limit the working capital (operational cash flow) needed to keep the business rolling along — pun intended.

So, the owner of Acme Trucking decides to “sell” some of his invoices in exchange for some much-needed working capital, in this case to pay drivers and fuel costs. This is where he turns to a factoring company that offers some form of accounts receivable factoring.

Here’s how the process works:

• Step 1. If Acme Trucking does not already work with a factoring company, he will research factoring companies (such as Far West Capital) through referrals, industry associations, or perhaps using the Internet.
• Step 2. Once the business owner establishes a relationship with a factoring company, he explains his cash flow needs and provides a basic list of his invoice amounts.
• Step 3. Once an acceptable agreement has been made, the owner of Acme Trucking transfers the invoices / accounts receivable to the factoring company.
• Step 4. The factoring company advances 80% - 90% (and industry norm) of the invoice total to Acme Trucking, thus giving him the additional cash flow he needs for fuel costs and driver payments. The factoring company holds the other 10% - 20% of invoice amounts in reserve (similar to escrow), pending the full payment of the invoices.
• Step 5. The customers who owed the invoices to Acme Trucking will now make the payments to the factoring company instead.
• Step 6. When the invoices are fully paid, the factoring company will deduct a fee from the amount held in reserve and give the rest back to the trucking company. (This is how Far West Capital usually operates, but some factoring companies charge their fee up front. Always ask about this in advance.)

Factoring Companies Vary

This is a basic scenario to demonstrate the process of accounts receivable factoring. The important thing to remember is that factoring companies, like any other type of company, will operate differently and provide varying levels of service. So always ask about this process in advance, including fees, reserve amounts, payment process, etc.

Contact Far West Capital

We hope you enjoyed this tutorial on factoring companies, and we welcome any and all questions you may have about accounts receivable factoring and financing. If you have questions about our services, please contact a representative of Far West Capital. We look forward to hearing from you.