How does Accounts Receivable Funding (Factoring) work?
Basically, Accounts Receivable Funding is simply the purchase of accounts receivable from a business at a discount. It is designed for businesses that need money immediately, and can’t afford to wait 30, 60 or 90 days for a customer to pay. In most cases, either the business owner can’t meet his/her cash demands (because, for example, customers are slow to pay or income is low due to a seasonal slowdown), or his/her business is growing so rapidly that its cash flow can’t keep up with its growth. Can you give me an example of a factoring situation? Betsy’s Flags, Inc. receives an order for 100 cases of flags from Eric’s Emporium. They send Eric’s the flags, along with an invoice of $5,000. The invoice specifies payment is due in 30 days. The next day, Betsy’s Flags gets an order for 50 cases of flags from Kyle’s Corner. In order to fill the new order, Betsy’s will need to purchase new supplies to make the new flags. Unfortunately, Betsy’s Flags does not have the resources to pay for the
