In the process of billing a client (sending them an invoice) for their purchases or services, there is usually a 30-90 day billing cycle in which business are waiting for their Accounts Receivable’s billing to be paid. This is a time in which money is not coming in, their income is at a standstill on this account and it is costing the company money. This is a difficult time particularly for a small to medium size business because it is freezing up their liquid assets (money) which they do not have a lot of anyway, and that affects the money the business has to spend to keep going. There is also the problem that the bill may not be paid until later into the 30-90 day cycle, instead of the first 30 days which is required and they may not pay at all. The longer the client waits to pays them, the less money is coming in, which puts a strain on the small to medium size company and can affect their company being able to stay afloat.
One way to deal with this problem is called “Factoring.” This is a process in which the company “sells” their Accounts Receivable billing-the invoices that have not been paid yet-at a discount then, add the fees plus interest that they company that bought them gets paid. This is usually the companies with good or fairly good credit. This company then pays the company a percentage of the “Accounts Receivable” that is owed right away to keep them liquid (keep their cash flow going). This is a form of financing because it gives the business most of the money that the customer owes them. Orion Business Capital Is a leading factoring company. Whether you’re a start-up looking for small business factoring or an established company looking for a comprehensive accounts receivable financing solution, Orion Business Capital has you covered!
This is not considered a loan and the company that purchases the “debt” is not guaranteed that the bill will be paid. They are essentially “financing” a debt and taking over a “collection.” This seems to be very popular in other countries besides the United States. Obviously, the better credit the creditor has, the better the account and the better the deal to the person factoring. This type of “financing” is very similar to commercial lending by a bank, but the difference is that there is no having to put up collateral. This is an outright purchase, so no collateral is required. The accounts that have been factored can also not be a part of a bankruptcy that has been filed by a company.