It is an exciting time to be in business. With more different options for financing and fundraising than ever before, your opportunities can be managed in a way that fits your business; instead of finding a way to make your business fit the strategies that work with the funding. This provides a new way for companies that would find traditional business loans with fixed payments and (usually) secured assets a real challenge. Loans that are based off future sales, outstanding invoices, and other mechanisms that are less dependent on history and more dependent on the future can really help a developing business grow. One of the best ways to take advantage of this is by factoring receivables to free up your cash flow.

Factoring Benefits

Factoring is a way of gaining a cash advance on your outstanding invoices, and it is one of the lowest-risk forms of financing available to small business owners. Some factoring agreements even include explicit protection from default for the borrower, and they can do this because the borrower is not technically the one who has to repay the loan. Instead, the factor collects payment through the invoices owed to the borrower at the time the loan is made.

This allows you to use factoring receivables as a way of getting your outstanding invoices now, minus a percentage and some fees, and that can allow you to put that money to work right away. As your customers pay to factor, they will deduct their fees from the payment and forward any leftover balance to you, so you still do collect a portion of the money that was not advanced, too.

Limitations and Considerations

As you might be able to imagine, factoring opens up a lot of other options for a small business owner. There are a few things to keep in mind when planning your best strategy for using this product to advance your business. First of all, there is the fact that you are limited to borrowing a percentage of your outstanding invoices, so your volume of business greatly affects your loan amount. The other thing to remember is that the strength of your customers’ payment histories is a large contributor to your terms. The better your customers have been about paying you, the more money your factor will be willing to advance you against their invoices.


Even with the few limiting considerations that can affect a factoring receivables deal, this option remains as one of the most accessible and affordable ways to get cash for your business without worrying about loan repayment or adding too much direct overhead. It can help with inventory management for any business that collects on their services after they are rendered, and working with the same factor regularly can bring other benefits. Find someone you trust, and take your business to the next level.