Factoring Accounts Receivable When Needing Cash

The lifeline of any business is their ability to convert their receivables into cash. Factoring accounts receivable is an important part to being successful. Basically, this is a process where a good or service has been provided and payment for it has not been made at the time of the service. As a result, the balance due becomes a receivable.
Effectively managing this part of the books is important to keeping a steady stream of cash coming into the business. Many businesses have turned to point of service methods of collecting payments at the time the service is rendered. This greatly reduces the receivable and the risk of it not getting paid.
Point of service systems require the buyer to pay for the service up front. In some cases, like health care, point of service accepts partial payments. This is because many times the entire cost or charge for services is not determined until after the patient has been treated or discharged. Retail is different because you typically can't take an item without first paying for it.
In retail settings, point of service is nothing new. In fact many companies have credit and debit card machines installed to their cash register systems. This interface helps them to accept electronic payments, personal and business checks for the item being purchased.
Receivables management is typically factored and recorded by a formula. This formula gives an indication of how timely the A/R is being collected. Days in A/R are a reflection of the ability to convert that payable to cash. So if the days in A/R are 35, then that means on average, it takes 35 days from the time the product or service was provided to the time that it was paid. The goal is for this number to be lower. The lower it is the better indication that cash is coming in the door.
Improve Your Cash Flow By Factoring Invoices
Factoring invoices, that is, selling invoices to another company (the factor), can be a great cash flow enhancer. There are a number of ways to quickly get cash when you're in a business that has accounts receivable, but factoring is one of the easiest methods. It is an invaluable tool to an up and coming business that has a number of benefits.
Selling accounts receivables is more desirable than a loan. First off, it's easier because it doesn't require any credit history or collateral. Second, there's nothing to be paid back because it's money that already belongs to the company. The purchasing company will buy out the invoices that are set to be collected out of the accounts receivable, so that is the amount received, less any fees or percentages taken for the transaction. It doesn't need to be paid back because the invoices are for products or services already rendered.