subject: Accounts Receivable Factoring Can Be a Payroll Financing Solution [print this page] Accounts Receivable Factoring Can Be a Payroll Financing Solution
Often smaller business units in stage one growth struggle to have cash available for the weekly or bi-weekly payroll deposit. The most common reason is that business customers usually take 30 days or longer to pay invoices. Accounts receivable factoring provides immediate cash for invoices the business generates which allows the small business to have the cash sooner eliminating the 30 day or longer waits for payment. This powerful cash flow tool can be a very cost effective solution for payroll funding.
Accounts receivable financing has been around for a long time, but often business owners are turned away by banks and do not know the product exist and is available at a reasonable cost of money. When banks underwrite this receivables financing they need to consider the whole business financial strength along with he credit quality of the accounts receivables. If it's a younger business without positive established financial data, then typically the bank declines the request for funding. Non bank providers of accounts receivable factoring can often approve these same transactions as they are most concerned with the credit quality of the accounts receivable, not the small business requesting the cash flow solution.
This more aggressive underwriting and approval process has opened the door for newer small business without strong balance sheets to obtain working capital and cash flow solutions. It makes sense to look at current receivables credit quality and future receivables in the decision process and that is what these lenders can provide. When your customers are taking 30 days and longer to pay, knowing you can have access the cash immediately when invoices are generated can make the difference in making the payroll deadline and not making the payroll deposit on time.
If your business has had some close calls with making the payroll deposit, then taking a look at accounts receivable factoring should make sense. Banks continue to turn away smaller companies that need access to working capital. The working capital solutions exist, but you will need to consider some non bank sources that can be more flexible.
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