Are your accounts receivable gathering dust on a balance sheet?
Factoring is a practical solution for a for a freelance or service business that has verified accounts receivable and needs working capital.
Service and freelance businesses face idiosyncratic challenges when it comes to operating. Since those providers are not selling a tangible product, a client may delay payment, often for up to 90 days. Even when business is strong, slow collections on accounts receivable can make it difficult to meet recurring obligations like payroll or rent. This is where a factoring makes the difference.
Factoring puts accounts receivable to work
Capital Solutions supports freelance service business by transforming funds from non-performing accounts receivable into available cash or line of credit through factoring. CSI arranges the purchase of accounts receivable for cash minus a small, agreed upon fee. Factoring verified accounts receivable can go through in a matter of days, rather than the months required for traditional loans.
Types of service businesses suitable for factoring include:
- Staffing agencies
- Web development & design
- Billing, payroll & bookkeeping
- Medical coding
- Content provider
- Graphic design
Factored accounts receivable can be disbursed as a lump sum or a line of credit. If using the line of credit, only the amount accessed will accrue financing costs.
The bottom line is factoring is not a loan, but rather early payment of the invoiced amount. Working capital gained through cleaning up accounts receivable is not classified as debt. Strategically. factoring improves cash flow to meet obligations like payroll, purchase inventory, or even clear up accounts payable.
Capital Solutions helps small and medium-sized businesses to double down on their cash flow management. To this end, we work with long-term financial partners to structure lump sum payouts or a line of credit.
Here’s how factoring works:
To start the process, a business sends Capital Solutions relevant information — this may include:
- a list of customers
- the company’s gross sales in the previous year
- the total amount of its outstanding invoices
- financing methods already utilized
After analyzing these elements, CSI reaches out to our factoring partners to gather alternatives for the factoring transaction. The factor then purchases $500,000 worth of outstanding invoices. At this stage, you receive 80% of the invoices’ value at the outset, as agreed upon with the factor. This means that you get $400,000 to use as working capital or as needed. Incidentally, this whole process taken place over a brief time-span. After verifying the invoices, typically the factor sends 48 hours later.
At this point, the factor assumes responsibility for collecting the accounts receivable it purchased. Once this is accomplished, the factor sends the remaining $100,000 minus the factor’s transaction fee.