Liquid Capital of Arizona is part of an international finance company. President Joel Gottesman explains that the company’s focus is on providing financial services for small and mid-sized businesses. One of those services is factoring.
Factoring is the purchase of commercial invoices from businesses and providing a business with immediate cash. For example, a business may sell a product or service and face a wait of 45 to 60 days until receiving payment. A factor purchases the account receivable at a discount, allowing the payment to be put back to work in the business. Factoring works like a cash accelerator for small businesses.
Gottesman says that factoring is commonly used by earlier stage companies that are not yet able to obtain bank financing. In a typical factoring transaction, Liquid Capital will advance 80% or so of a customer’s invoice to that customer. Liquid Capital charges a discount for its service. The amount of the discount depends on how long it takes for Liquid Capital to receive payment. When that payment is received, the customer receives the rest of the payment, less the discount fee.
The biggest advantage of factoring is that it makes cash immediately available to small businesses. It is available to companies not yet sufficiently established or capitalized to qualify for bank financing. Factoring permits a business to grow at an optimum speed.