The last year has proven how quickly disruptions can arise and how integral it is for your business to have an adequate cash flow to rely on in times of need. The sad fact is that it isn’t easy to synchronize invoicing and payments in the business world. Service providers will always have to wait a period of time before some payments are made. In some cases, the waiting period can be lengthy, leading to a lack of cash.
To remain successful, organizations need a reliable source of money to lean on when they need a quick influx of cash. One way to do this is through Accounts Receivable Factoring. This form of financial management can help keep your business operating smoothly and help you to raise instant cash for your workplace needs. We’ve compiled everything you need to know about Accounts Receivable Factoring for you to make an informed financial decision.
Accounts Receivable Factoring allows you to receive payment for completed work or services immediately, rather than waiting for customer payment to be received. One of the oldest types of commercial financing — it involves the selling of accounts receivables, or outstanding invoices, at a reduced or marked down price to a factoring or financing company.
This accounts receivable lender, or factoring company, assumes the risk on your outstanding receivable, and in return, grants you an influx of cash to be used for your business goals. Funding for Accounts Receivable Factoring takes place in two ways — by lending or purchasing your businesss’ outstanding invoices and providing a swift influx of cash to your company.
You’ve done some research and determined that factoring is a solid option for your business. What comes next? Before you enter into any agreements, you need to make sure you are well-versed on the following elements:
In many cases, Accounts Receivable Factoring can be a strategically beneficial move for your company. One thing you might notice is that without the worry over cash flow, you’ll lower the levels of stress you feel in your role. Some other key benefits of factoring include:
While the lure of instant cash might be too good to resist, it is important to understand the drawbacks organizations might face when factoring in their accounts receivables.
With Accounts Receivable Factoring, you will often face higher interest rates. These rates can vary from 1% for 30 days to upwards of 4%, reducing the amount of capital your company receives from the account. It is important to note that the actual cost of factoring is not just the advance rate. It is the total cost of the service. One way to look at factoring is to think of it as using a Payday Loan service. While you do get access to your money sooner, it comes at a cost to your capital.
Changing the contact information and payee information in systems can be very time-consuming and tedious. Every time you want an advance, you need to submit information about your schedule of accounts, invoices, and other required documentation.
Plus, with the length of each agreement varying, contracts can quickly become lengthy. In a process like this, there are many opportunities for human error that can cause delays in the system.
How does Tradeshift Cash stack up with traditional accounts receivable factoring? Let’s start by emphasizing how they’re similar: Both will pay on funded invoices early, so that a business has cash flow when needed. But Tradeshift Cash uses network technology and a data-driven approach to determining the rate of financing. And that makes all the difference. Because of that, we stand out for our:
Tradeshift Cash provides a seamless and user-friendly interface for buyers and sellers to facilitate payment processes. You don’t need to provide mountains of paperwork or undergo countless checks like you would with a traditional bank loan. You just need to sign up, see if Tradeshift Cash is a good fit for you, and start getting paid. Our digital platform reduces the need for paperwork, creating an organized and efficient process for all parties involved. The simple enrollment process for Tradeshift Cash lets you get on your way in just a few clicks.
With Tradeshift, you get access to transformational tools like digital invoicing and the ability to promote your products and services to new buyers. Plus, once you’re on the network, you stay on the network and can keep all the value you get from it. Sellers don’t have to rely on their buyers for underwriting — Tradeshift Cash uses real-time and historical transaction data instead.
With Tradeshift, you can get paid faster and less expensively than other standard loan and early payment solutions. We base our financing rates on your transaction and credit history, putting you in control of your rate. Unlike most accounts receivable factoring, Tradeshift Cash not only gives you power over when you get paid but also more control over how much you get paid. Our network funding looks at the strength of the relationship between you and your buyer bases the cost of financing off of that. This means if you have a strong relationship with your buyer, you can get paid quickly and cost effectively, regardless of the terms of your invoice.
Tradeshift is changing the game when it comes to securing early payments for your business. Our Cash solution enables businesses to control their cash flow, giving them added resiliency and adaptability when future disruption occurs. To learn more about how we can help you make Shift happen in your organization, check out our full menu of products. Do you want to get started with transforming your supply chain?