Accounts Receivable Factoring

Accounts receivable factoring is often used by a business owner to obtain fresh capital in order to sustain business operations. She can also use the new funds to make the monthly payroll, hire additional staff or for any purpose related to the needs of the business.

Receivables

The amount of capital a business owner can obtain depends on the age of the company's receivables. Newer receivables hold more value than older ones. For example, a lender will give the business owner 75 percent of the face value for receivables that are 30 or fewer days old. Receivables that are 31 to 60 days old may have a face value of 60 percent, and those that are 61 to 90 days old would have a face value of 30 percent.

Receivables that are older than 90 days may not have a face value at all per the lender’s guidelines, resulting in no funds for the business owner for these accounts.

Default Consequences

A default can cause the lender to repossess the accounts receivable if it has no other alternative. This could force the business owner to initiate bankruptcy proceedings unless she is able to find another source for her cash flow needs.