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

This entry was posted on Friday, November 16th, 2007 and is filed under Factoring Receivables.