It is important to understand the economic benefits of factoring your accounts receivable. The concept revolves around improving your cash flow cycle. Using factoring helps you increase the number of times a year your cash moves through the business. The process of making a sale, purchasing product, and getting paid creates a cycle of cash flow. Each sale, creates a profit and the capital that goes into making that sale, including supplies, labor, overhead is considered the expense of making that sale. On average, a business can cycle its cash through seven or eight times annually. But by utilizing the benefits of accounts receivable financing that average can be increased. Getting paid faster on invoices means you have cash on hand to buy more, to sell more. The cost of factoring is considered part of the expense so if a company generates 2 – 3 more profit cycles that cost is obviously offset. Increasingly these costs are incorporated into the sales price of the product or service.
In this way you increase your bottom line by earning profit more times a year. Accounts receivable factoring is one of many ways to make your cash flow cycle work more optimally for greater annual profit.