How Factoring Works: Access Working Capital via Invoice Financing

When small and mid-market business owners face working capital inconsistencies or cash flow shortages, they need a solution that allows them to quickly bridge gaps and keep moving forward.

As one business owner explained, “, Waiting 30, 60, or 90 days to get paid was impacting our ability to grow our business. Banks weren’t interested in working with us and our other funding sources were tapped out. We were between a rock and a hard place until we learned that we could convert unpaid invoices into cash through factoring.”

Factoring, also known as invoice financing or accounts receivable financing, is gaining popularity as more companies than ever are turning to factoring for their funding source, especially as banking regulations become more stringent. To help clients understand more, the team at Gibraltar toplines the five basics of how factoring works:

  • To establish a financing relationship, businesses typically submit summary accounts receivable and payables agings along with a current year-to-date financial statement (balance sheet, P&L)
  • The factoring company assesses the creditworthiness and willingness of your customers to pay their invoices and evaluates the overall risk of the relationship – this process can be completed within 24 hours of receipt of required financial documents
  • Based on the initial assessment, the factoring company will issue a proposal that should include costs, amount of advance and term of the agreement
  • Once the proposal is accepted and finalized, there is a short closing process that can take approximately 5 business days
  • The factoring company provides financing to your business, allowing you immediate cash without having to wait to get paid by customers

Factoring can work across a number industries, including staffing, manufacturing and wholesale distribution. To learn more about accounts receivable financing solutions, download Gibraltar’s comprehensive guide: Factoring Fundamentals: Access Working Capital Via Invoice Financing, or contact a member of our team today.

Leave a Reply

Your email address will not be published. Required fields are marked *