Factoring receivables is simple, and yes, for the most part, easy. (Any business owner knows those two things are NOT one in the same. But that’s another blog.) Still, it’s a financial move, and as any (good) financial consultant will tell you: always ask questions. Lots of ‘em.

I’ve talked before about consults, the nervous owner who’s been previously turned down; the growing business with little to no history…In my experience most factoring questions center around credit and with good reason. Credit, especially while our economy is mending itself, is a pretty important aspect to business in America.  So, does factoring receivables have a qualification process and how does it work? Simply put, Yes, Factoring has a qualification process. But factoring companies are not in the business of loaning money; factoring companies are service providers. And the qualification of an invoice factoring transaction depends on two things primarily, and neither of them are business credit history. First, a factoring company will place little emphasis on your credit, because it is not your bills they are collecting – it is rather, your customers’. Which is why the debtors’ pay-worthiness holds more weight than the business selling the receivables. The second “qualification” consideration places emphasis on the value of the receivables. In other words: the business’ outstanding invoices are essentially viewed as an asset, and many times the value of this “asset” will determine whether a factoring company will indeed “qualify” a business for A/R factoring, or at which rate the invoices will be factored.

Perhaps the most basic qualification for factoring though, is that the business is profitable.  Remember: factoring companies help you create capital, not debt. So long as that business stays in the black, a factoring decision can profitable for all involved.

Have a great weekend factor friends. The holidays are upon us and we know money’s on the minds of many. We’ll be back next week to talk about some holiday cheer – and how invoice factoring can bring smiles to all your employees’ faces.

The point is: factoring is nothing new. And, in times when banks are closing left and right, doing the stock price name shuffle, and are in an overall unreliable condition, it’s nice to know there are companies out there depending on business practice instead of unpredictable markets. Factoring is not some new fan-dangled scheme promising the world to business owners. Invoice Factoring is a simple transaction that creates capital and provides resourceful access to operational dollars. There are circumstances when  accounts receivable factoring is not the solution, but for many small to medium sized businesses, it’s an old way to find new money.

A/R Factoring is a simple concept that goes 1-2-3.

1. Factoring companies facilitate payment for a business’ A/R.

2. Factoring companies collect payment for the factored invoices over the course of the invoice terms (30 – 60 days typically), in exchange for a negotiated percentage of the invoice volume.

3. The business uses payment from the factoring company to execute vendor orders, pay employees, produce bulk inventory and more.

There is nothing questionable about what factoring is or why it works. Market fluctuations do not drive factoring companies to the top of the business world, only to drop them into inoperable bankruptcy -  like we’ve seen with our banking structure. And last, but certainly not least, factoring invoices does not create debt. In fact – it can actually help businesses get out of debt faster! It’s these small truths that make factoring a timeless practice, and in times of struggle, and even recovery, invoice factoring is a great way to realize funds without visiting the local bank. Plus, the bank line stopped being fun when you were too old to get lollipops.

Back for more Thursday when I chat factoring qualification! See you then!