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Credit Card Factoring: A Creative Business Option


by Andrew Cravenho, CEO of CBAC LLC

One of the greatest hurdles for any small or medium sized organization is the balance between income and expenditures.  While sales may be robust collecting on the receivables or monthly accounts provided with payment terms can take longer to process.  Many businesses are required to extend thirty, sixty or even ninety days credit in order to remain competitive.  Unfortunately most operational expenses such as salary, property and other costs do not offer extended terms of payment.  While your business waits to be paid by your accounts receivables your operating expenses cannot.

So how do you bridge the gap?

Traditionally most business enterprises have relied upon a large line of corporate credit to advance incoming receivables and other sources of income.  By borrowing short term against the business line of credit it enabled small and medium sized organizations to create a “cash advance” of their incoming sales and against the value of their pending receivables.  The problem with that method was the tendency to incur increased interest costs of borrowing while running the risk of increasing the amount of debt accumulated on the business line of credit.

Why Banks Won’t Help.

The ‘Credit Crunch’ has lead most small and medium sized businesses to experience additional adversity given tighter constraints on borrowing. In the current economic climate, banks are not willing to take what they consider to be undue risks with borrowers.  Unsecured revolving debt (such as a line of credit) represents the greatest default risk for financial institutions. As such, many businesses have found it difficult to open a new line of credit. Some have even had their credit lines reduced or even eliminated.  The so called “Credit Crunch” has made borrowing harder while continuing to increase interest rates and user fees to the point where many small businesses would look outside of a major bank for assistance.

Some businesses can find themselves in a difficult situation where their credit card receivables are extended. This is common with businesses that use a pay-per-month sales platform. Although a sale may have transpired, there may be an extended credit card processing time due to conditions of the sale. The business may know that this income is in transit but will have no access to it until it is processed and deposited. For a business with high sales and extended payment plans, waiting thirty to sixty days for processing can create difficulties in monthly cash flow.

What Is Credit Card Receivable Factoring?

If a business has a robust and steady value of credit card transactions on a monthly basis, it can explore the opportunity to increase liquidity and cash flow using a creative option called Credit Card Receivable Factoring. Basically what the business is required to do is provide evidence (invoices and details) that there is a sale in progress which requires payment from the customer.  The proof of “incoming” receivables allows the business to literally advance the funds of that receivable (by using a factoring company like Universal Funding, for example) who will provide the cash up front for the incoming invoice.

So what’s the catch? The Factoring Agency charges a fee from 1% to 3% of the value of the receivable which is due to the business.  This fee is typically charged every month while the invoice is being processed for however long it takes for the customer to pay their bill.   When this happens the amount of the advance is released fully to the business, and the service fee is charged.

Why Businesses Like Factoring.

Every business has its high sales periods and slower sales periods as well as times of high versus low cash flow situations.  Going to get a small micro loan from the bank is arduous and time consuming. There is also no guarantee that the financial institution would issue a loan at all. Instead most businesses are opting for Credit Card Receivable Factoring to allow for access to the revenue of the business faster and more easily.

Another benefit to freelance professionals or small business owners is that to qualify for credit card receivable factoring services, no collateral is required. It is not processed as a loan because it does not function as a loan. The amount of credit card receivables due entitles the business owner to access it for a fee while the small business prevents extending credit to individuals with poor payment histories. When using a factoring service you want to ensure that you are only using customers who pay their credit invoices on time to avoid further charges from the factoring agency.

Credit card receivable invoicing can be used as an ongoing solution to cash flow issues or used once to create a large one-time injection of working capital. By freeing future secured income for immediate use, most businesses managing expenses far easier on a monthly basis.   After all it is money that belongs to the business, the factoring agency simply allows for convenient earlier access to the funds.

Is factoring a good option for your business? It depends largely on the type of business, the amount of monthly sales versus credit card receivables that you process and other factors including debt and available credit.  But if the best alternative appears to be securing a short term loan, you can explore the option of discounting your credit card receivables instead as a faster and less complicated option.


Andrew Cravenho is the CEO of CBAC LLC, an innovative invoice financing exchange. As a serial entrepreneur, Andrew focuses on helping both small and medium sized businesses take control of their cash flow. Prior to CBAC, Andrew founded an annuity financing company relieving tort victims of financial hardship.