Business receivables factoring is when a third party purchases existing, uncollected invoices from a business at a discounted rate and in return gives the business immediate access to money or services.
Business receivables factoring is most common in businesses where there is a significant time span between when a sale happens and when the customer's final payment is made. For example, let's say your business sells an expensive product that allows the customer 12 months to settle the obligation.
This means from the time of a sale, there are months where your business receives only a small payment toward the larger balance. Because this sale is a high-dollar amount and takes up to 12 months to settle completely, your business might experience some cash flow issues during these 12 months. By factoring this uncollected business receivable, your business could receive a percentage of the total sale immediately.
AdvanceMe's Merchant Cash Advance is similar in some respects, but it should not be confused with business receivables factoring. There are actually many clear differences between these two financial options.
Perhaps the most significant difference is that factoring requires a specific sale to have been made before the factoring can occur, and this is not the case with a Merchant Cash Advance. A Merchant Cash Advance involves the sale of a specified amount of future credit and debit card sales - therefore, it is not tied to specific invoices or sales that have already occurred. To learn more about how a Merchant Cash Advance might help your business, click here.
Business receivables factoring can be a smart and simple way to balance current cash flow issues in your small business. As with all financial decisions, it is suggested that you take the time to speak to professionals and to research all of your options before making a decision.
