The world of financing can be complex and fast-moving. With so many technical terms floating around, it’s easy to get confused. For example: What is the difference between receivables factoring and receivables securitization? Keep reading to find out.
Securitization of Receivables
To talk about securitization of receivables, we have to understand first what securities are.
The term “securities” refers to investment instruments you can buy and sell, such as bonds and stocks.
One important characteristic of securities is that they are intangible. This means that, unlike other investments like real estate, they don’t exist physically.
The term “securitization of receivables” refers to a process through which a company bundles its unpaid receivables and sells them to investors through a bank.
It’s important to note that while all this sounds relatively simple, securitization is a complex process that involves several steps.
Receivables factoring
Simply put, factoring your unpaid receivables means selling them to a company called factor.
When you factor your invoices, the factor pays you upfront so you don’t have to wait 30 to 90 days to get that money from your clients. Then the factor collects the money from your clients in exchange for a small fee.
Factoring allows companies across many industries to manage their cash flow and get the capital they need to do things like:
- Pay suppliers
- Buy raw materials
- Pay insurance
- Meet payroll
- Get early payment discounts
- Adjust production to seasonal demand
Compared to securitization, receivables factoring is simpler and more flexible. In the next section, we’ll take a closer look at the differences between these two processes.
Receivables Factoring vs Securitization of Receivables
As touched upon above, securitization is an elaborate process. It involves at least three parties: the company that owns the invoices, the bank that helps bundle and securitize the receivables, and the investors that buy the securitized invoices.
This complexity means that securitization makes sense only for large companies. For medium- or small-sized businesses, receivables factoring is usually the best option.
To factor your receivables, you don’t need to work with a bank or find investors interested in buying your securitized receivables. Factoring is as simple and straightforward as a sale: you sell your unpaid invoices and you get paid immediately in return. It’s easy, fast, and flexible — just what most businesses need.
ACS Factors: We Turn Your Invoices Into Immediate Cash
At ACS Factors, our mission is to help you get the capital you need to move your business forward. We are located in Upland, California, and have many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Reach out today by email (info@acsfactors.com) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube, and start converting your accounts receivable into cash today!
