3 SURPRISING Things You May Not Know About A/R Financing - Capital Now - Canadian Energy News, Top Headlines, Commentaries, Features & Events

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Accounts receivable financing, also referred to as factoring, has become one of the most common methods of short-term financing for business. If you consider the way in which most businesses operate today, it is impossible to have all your clients pay you immediately after you provide them with a service or sell them something. It can take a while for customers to pay what they owe, especially in industries such as telecom, oil and gas, staffing, trucking, healthcare, and pipeline among others.

Customers typically take 30 to 90 days to pay for your goods or services. This is just the nature of business today and there is no escaping it. But then this makes it necessary for businesses to find other ways to meet their operating expenses on time. Taking loans or using bank overdraft facilities were the most common options, but not so any more. Factoring is now commonly used because it has several advantages over loans and other methods of finance.

Factoring enables businesses to meet cash shortfalls and have a steady cash flow. You will not have to deal with the inconveniences of customers defaulting on payments. You get to transfer the risk of default to a factoring company such as Capital Now Inc. When you enlist the services of Capital Now, you will get 75% of the amount owed by your customers immediately, and the remainder, minus fees, will be given to you once the customer pays up. Below are 3 surprising things you may not know about factoring.

Businesses have been using A/R financing for a long time

While many businesses are just coming to learn of this method of financing operations, it has been in use for ages. The earliest recorded use of factoring was over 4,000 years ago by traders in Mesopotamia and they had very elaborate rules for factoring. It has continued to be used over the years, although it was not as popular as it is today. Factoring was necessitated by the fact that most goods had to be transported over long distances and traders would have to wait for a long time to receive payments. It enabled the producers to receive immediate payment so that they could have cash to purchase raw materials and other supplies and continue with production. This method of finance was common in the textile industry.

Factoring does not create a liability

Although many people wrongly assume that factoring is some type of loan, it does not create a liability. This is why it is a great alternative to traditional bank loans. You get money by selling some of your invoices, which are an asset. The catch here is that the invoices are sold at a discount. That is the cost of factoring. It can sometimes be higher than the cost of getting a bank loan, but if you consider the trouble you have to go through to get a loan, and the chances that your application will be denied for some reason, factoring is definitely a competitive alternative. A/R financing also helps to improve your business’s credit score as you will be able to make payments on time and not deal with unexpected cash shortfalls which can land you in trouble with your creditors.

Great way for small businesses to grow

Many businesses consider factoring as a last resort to enable them to meet cash shortfalls. However, small businesses can use it strategically to finance their growth. Many small businesses, especially startups, have trouble getting financing from traditional lenders like banks because they are considered to be high-risk borrowers. This is where factoring comes in handy. You might have had to stall some projects as you wait to be paid, but by factoring, you can continue running your business as usual and start new projects to grow your business.

Conclusion

Now that you are enlightened on what accounts receivable financing is all about, you can start using it to your advantage and ease some of the pressure that comes with looking for financing for your business. By using the services of factoring companies such as Capital Now Inc., you will be able to have smoother operations at your business because you will have a steady flow of cash that you can rely on. You will also be able to finance your business growth, which is something that most small businesses are struggling with.

For more info, call 403-617-2075 or email info@capitalnow.ca

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