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If you aren’t aware of what factoring is, it may seem to be quite like a loan, but do not be deceived. Factoring is the practice in which a business will sell their accounts receivable so they are able to continue business. This is helpful when a business performs a service for another business that has a long hold time on their invoices, causing the business to wait a great deal of time to receive all their payments due. When that occurs, it can deplete the business’s operating budget as they have done the work, but haven’t been paid, causing the business to need shorthand cash for venture capital or any investments that may come up.

Instead of waiting until they have no budget, the business will do what is called accounts receivable factoring, or invoice factoring, allowing them to get the funds they need. They will sell their accounts receivable to a third party, allowing that third party to collect the monies and only pay the business a discounted price. This is extremely beneficial to businesses as they must have an operating budget and revenue that is in balance for the business to be able to operate continuously and efficiently.

So, no, factoring is not a loan. Though it is sort of like getting a loan, the business is really selling their assets for the third party to collect on, giving the business the operating revenue they need when their customers are holding the invoice for an exceptionally long time. Invoice factoring prevents the need for a loan, allowing the business to prevent any further costs incurred due to the invoice holding of their customers. Accounts receivable factoring is a practice that is quite commonly used in order to collect debts in a timely manner without strain on the business’s finances.

Tax time comes around like clockwork each year and each year your business has several tax deductions that must be calculated. Of course, if you are making so much in annual revenue, you will owe a bit to the IRS, but what happens if you miscalculate your deductions and payment to the IRS and end up with a tax cash shortfall? You could definitely get a loan, but the process could be long and end with a bit of penalties from a late payment and the outcome could be your business going further into debt. So what then?

Receivables financing, better known as invoice factoring, is a long time financial practice that has been used in small businesses since way back when. The trend towards accounts receivable factoring is beginning to regain fuel as more and more businesses are finding the process highly beneficial in contrast to bank loans for many reasons. The most significant reasons are:

• Quick Approval
• Immediate Funding
• Acquisition of Owed Monies
• No Collateral or Repayment
• No Interest

What makes factoring such a beneficial practice when it comes to tax cash shortfalls is the fact that the process is so quick. You could literally sell most or just one of your unpaid invoices, obtaining money that is already owed to you but just hasn’t been paid yet. As you will likely have a deadline to pay the IRS the shortfall, you will be able to receive the monies in a timely manner, unlike with a loan. You also won’t have to deal with any interest rates and high payments to the lender.

Invoice factoring allows you to sell your unpaid invoices to a factor, who will give you a very large percentage of you monies for an advance. You will pay a small fee that can range from 1%-10%, depending on the factor, and you can receive your money between 24 hours to 7 days, also dependent on the factor. Within hours using factoring, you could have the funding you need to pay the tax cash shortfall without feeling any repercussions from the experience.