Small Business Center of Excellence

Accounts Receivable Factoring for Small Business

[Accounts Receivable Factoring Illustration]

Accounts receivable factoring is a mechanism designed to accelerate cash flow for small businesses. Managing cash flow is a persistent challenge for many entrepreneurs, and factoring provides a vital bridge between invoicing and payment collection.

Understanding the Process

Factoring involves selling your company's accounts receivable (invoices) to a third party (a factor) at a discount. By doing so, you receive immediate capital rather than waiting 30, 60, or 90 days for clients to pay their invoices.

Benefits for Small Business:

  • Improved Liquidity: Get immediate cash to cover operational expenses or payroll.
  • No New Debt: Unlike a traditional bank loan, this is a sale of an asset, not an incurrence of liabilities.
  • Scalability: As your sales grow, your availability of capital grows with it.