What is Factoring?

Factoring is converting the accounts receivable of a business into cash by selling outstanding invoices to a 'factor' (PRN Funding) for a discount. Accounts receivable factoring gives the business immediate cash to manage its operations more efficiently.

Many businesses have not considered accounts receivable factoring when looking for financing, possibly because they do not understand it. However, factoring is one of the oldest methods of providing working capital to help businesses solve their cash flow needs.

Cash flow problems often occur at the early stages of business development or during periods of rapid growth. Cash flow especially becomes a problem in the healthcare staffing industry when completed work is unpaid for 30, 60, or 90 days after issuing the invoice. Thus, businesses often try to apply for small business loans.

However, conventional borrowing increases business expenses and normally requires additional collateral. Some companies--especially smaller ones--are turned down by banks because of loan underwriting criteria. Equity financing is generally harder to find than debt financing. And, once found, it takes longer to arrange.

With accounts receivable factoring, instead of analyzing the applicant's financial statements, the factoring company (PRN Funding) evaluates the strength of the client's accounts receivable. If the business has a product or service that it provides to a creditworthy customer, then the business is a candidate for factoring.

Accounts receivable factoring does not create debt or require additional collateral. It is very simple to use. Cash advances from 80% of the invoiced amount, depending on the customer and volume of business, can normally be obtained in 24 hours or less--and as often as the business has outstanding invoices and needs more cash.

With the cash flow problem solved, the healthcare staffing business has the working capital to pay salaries, reduce debt, improve vendor relations and focus on critical success factors--operations, sales and growth.

Next: Find out if factoring is right for you.