How Does Accounts Receivable Financing Work?

 Selecting a Factor: The first step in accounts receivable financing is choosing a reputable factor. Factors vary in terms of their industry specialization, rates, and services. It's crucial to research and compare factors to find the one that best aligns with your business needs.

 Application and Due Diligence: Once you've selected a factor, you'll need to submit an application. The factor will review your financial statements, creditworthiness, and the quality of your outstanding invoices. This due diligence process helps the factor assess the risk associated with purchasing your invoices.

 Invoice Verification and Purchase: After the due diligence process, the factor verifies the authenticity of the invoices and confirms their validity with your customers. Once the invoices are verified, the factor purchases them at a discounted rate, typically deducting a fee for their services.

 Cash Advance: Once the invoices are purchased, the factor provides you with a cash advance, usually between 70% to 90% of the invoice value. This immediate infusion of capital empowers your business to cover expenses, invest in growth opportunities, or manage unforeseen circumstances.

 Collection and Settlement: The factor takes on the responsibility of collecting payments from your customers based on the original terms of the invoices. Once the customer pays in full, the factor deducts their fees and remits the remaining balance to your business.