Using invoices as collateral is done continuously by businesses, large and small, worldwide and is called factoring. Companies in every industry occasionally have cash flow issues. Many times this is because of slow paying customers. Incoming payments may be on the books, not having them in the bank can make it quite challenging for a business to operate effectively.

Cash flow issues can make it difficult for a business to run the basic operations it needs on a daily basis. Items like purchasing inventory, covering operational expenses or even payroll. These cash flow issues need to be resolved quickly and effectively or a business could experience serious setbacks and even not survive. Factoring, or using a companies invoices as collateral, is one effective way to address this.

The factoring process involves a company selling their invoices to a factor for immediate cash. A business sells them at a discount, say 80%, and receives payment in this amount. The factor then collects on the invoices and becomes the bill collector. Once the factor has received the entire balance, they will return the reserve (the amount over and above the initial purchase price) to the seller minus any factor fees.

The factoring process is great for the seller because it allows them to get cash immediately. A company can receive payment in as little as 24 hours after the company has been set-up by the factor. Factoring allows the seller to get their money right away and not have to wait for the normal collection process, which could take up to 90 days or more.

Factoring is also a perfect alternative to a bank loan. Businesses without perfect credit can still get access to cash when they need it, even in this tough economy. Getting the cash you need is be a huge benefit allowing a business to stay afloat or even expand without the help of traditional bank financing.

Businesses get immediate cash everyday through factoring, all over the world, giving businesses that may not qualify for traditional loans, an opportunity to. Instead of being held back by the traditional process of bank loans, they are leveraging the hard work they have already put in to infuse cash into their businesses.

Author's Bio: 

Paragon Financial was founded in 1994 with the initiative to afford growing businesses an alternative to conventional Bank Financing. When the banks either couldn't grant funds or bestowed too little, Paragon could promptly offer them a steady stream of cash through the factoring of their Accounts Receivables. Please visit us at or call 800.897.5431.