Money management

Accounts receivable financing: How it can help your small business

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Accounts receivable financing, also known as Invoice factoring, is one of the most effective working capital options for small business owners.

It has actually been around for centuries. Accounts receivable financing has made it possible for generations of business owners to unlock value in unpaid invoices.  

Instead of waiting for days or weeks for customers to pay their bills, accounts receivable financing allows business owners get an advance on those invoices and use the cash for pressing business needs.

Business owners have been factoring since the Babylonian Age. Many small and medium-sized businesses have been using this system to address their day-to-day business financing needs.

I’ve been working in the invoice factoring industry for years. In 2016, I took my factoring career to another level by joining Bluevine which has brought the centuries-old financing system into the 21st Century.

The opportunity to work for a startup seeking to make life easier for small and medium businesses by using technology to deliver traditional factoring is exciting to me. It certainly aligns well with my desire to help businesses to access capital easily and to be successful.

Nowadays, factoring is not just an effective way to raise capital. For many small and medium sized businesses, it’s also convenient and fast.

Here are five reasons why more businesses love factoring:

1. Setting up a factoring account is now easier and faster

The average due diligence period to establish a factoring facility for a company is 5 to 10 business days. With Bluevine’s online platform, you can even do it in a few hours.

The majority of factoring companies require no audit, and the list of items required to be provided by the company seeking a factoring facility is relatively short.

That’s not the case with other possible financing partners which require months of due diligence and expensive audits. And that’s why many companies choose factoring as the simple and convenient alternative.

With Bluevine, factoring becomes an even smarter financing option. This became clear to me within weeks of joining the company. Factoring Bluevine-style is faster and easier for business owners.

Take the experience of an old client of mine. The owner of an industrial services company, he called me one Wednesday saying he needed funds by the next day in order to make payroll.

Now, for traditional finance companies and most traditional factoring companies, moving that quickly would be impossible. With Bluevine, it’s totally doable.

Bluevine technology makes it possible to expedite the due diligence process. We had no problem providing the funds the company needed within 24 hours.

The client, of course, was impressed and grateful.

“Thank you so much,” he told me. “You have saved my business. My guys would have walked off the job if I hadn’t made payroll.”

Bluevine has changed factoring for the better, and I was excited to be part of this change.

2. Accounts receivable financing provides convenient access to capital

When a small to medium-sized business is growing quickly, it is an exciting time for its owners. But it can also be stressful.

With growth comes additional working capital needs. The business has to buy more inventory, hire new employees, and incurs other costs to meet this new demand.

For high-growth companies, traditional financing simply does not offer enough availability to meet this need. In these cases, a business owner is left with few options.

The owner can try to raise equity, but this means giving up a stake in their business. The business can decide to turn down new business orders to temper growth. But this means sacrificing higher earnings and potentially valuable relationships.

Factoring offers an alternative. For companies with commercial accounts receivable, high growth means more accounts receivable. Though invoices may typically be paid in 30, 60, 90, or even 120 days, a receivables financing company can fund these invoices as soon as they are billed, giving the business access to working capital to pursue growth opportunities.

3. Factoring Can Help Companies Survive a Downturn

Every business goes through cycles. Even great businesses have good and bad years. This can be because of a downturn in an industry. (Think depressed energy prices.) It can be due to a serious economic crisis or an issue unique to a specific business, such as product recalls or lawsuits.

The funny thing about traditional finance companies such as banks is that they only seem to want to give a business money when the business doesn’t really need it.

It’s very typical for these traditional financing partners to cut a business’s credit off as soon as the business stumbles which inadvertently worsens the situation.

Factoring companies, on the other hand, are more concerned with the strength of a client’s customers, not just on the strength of the client itself.

Because of this, even when a company hits a rough patch or has a bad year, a receivables financing company can continue to stand strong and be a reliable source of capital for the business.

4. Factoring gives you flexibility to pursue market opportunities

Now, you must also know this: factoring is generally more expensive than other traditional types of financing, such as bank loans. But there’s an advantage to the convenience and flexibility factoring offers. With factoring, a business can actually improve its margins.

Vendor discounts can be taken which can offset some or all of the cost of the factoring. Furthermore, the additional capital can be used by the company to take advantage of unique opportunities in the marketplace such as bulk inventory purchases at discounted prices or equipment being sold at fire sale prices.

The greater access of capital provided by factoring can allow a company to take advantage of opportunities that it would have otherwise missed and to ultimately be more profitable.

5. Factoring helps you manage accounts receivable

When a company factors, it is not only getting a working capital financing partner. It is also getting a partner with a vested interest in the performance of its customers and its receivables.

Because of this, the business can get some assistance from the factoring company with the management and administration of its accounts receivable. This helps the business ensure that debtors pay in a timely manner.

Now, of course, factoring companies are not collection companies. But additional support and expertise they provide can help improve the performance of a business’ accounts receivable and even lead to a decrease in bad debt. That means increased profitability and strong cash flow for the company.

For example, Bluevine has a manufacturing client that sells products to 30 to 40 companies a month. The client has an accounts receivables administrator, but the number of customers makes it difficult to effectively manage all of the accounts receivable. It can be tough to ensure customers are paying in a timely manner and not taking unauthorized discounts.

The Bluevine account manager has been actively working with the accounts receivable administrator to follow-up with customers when payment was delayed or when discounts were taken.

With the help of Bluevine technology, the accounts receivable administrator feels less stressed. Her workload has become more manageable. There are fewer unauthorized discounts being taken which has resulted in higher profitability.

And overall invoices are getting paid quicker as a result of the extra administrative support provided by Bluevine. This all has resulted  in improving the client’s cash flow and liquidity.

Bottom Line

For centuries, invoice factoring has been an effective and popular financing system used by generations of small business owners. Technology, including Bluevine’s pioneering system, is making it even more accessible and convenient to today’s entrepreneurs.

This article was first published on Jan. 10, 2017. It was updated on September 12, 2018.

More from the Bluevine Business Blog

How To Get A Business Line of Credit and 5 Mistakes to Avoid

Invoice Factoring Basics: How To Pick A Factoring Company


This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.

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This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.

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