What Is Maturity Factoring?

Maturity factoring offers small business owners an opportunity to get paid the value of receivables by the factoring company on the maturity date, which may be on or after the invoice due date. Both parties can agree to an alternative date; however, unlike traditional factoring, maturity factoring does not offer immediate funding.

How Maturity Factoring Works

Small business owners use maturity factoring, also known as collection factoring, to ensure that funds from invoices are available at a predictable date. Businesses that use a collection factoring service are selling their receivables to a factor that agrees to remit payment on or after the receivables’ maturity date. This differs from how traditional invoice factoring works because the funds are not available immediately.

Once the factoring company approves the creditworthiness of the business, the factoring relationship can start. After the business submits the receivable to the factor, the factor will verify the account with the debtor. If it approves the account, the factor will then agree to remit payment to the seller, minus its service fee, on or after its due date, depending on its agreement with the seller.

For example, if a factored invoice’s date of collection is on Jan. 30, the factoring company will pay the seller, minus its service fee, either on Jan. 30 or some preagreed date after. Small business owners may consider this as an alternative to traditional factoring because the primary purpose of the transaction is that they have the factoring company work as a receivables department for the business.

Who Maturity Factoring Is Right For

Maturity factoring is a niche form of financing designed for small businesses without collections and receivables departments. Business owners can create more predictable cash flows, outsource their receivables department, and build a relationship with a factoring company. Outside of these situations, collection factoring is inferior to traditional invoice factoring solutions.

Businesses that can use maturity factoring include:

• Fast-growing companies with no receivables department: Instead of focusing on building a receivables department, many small businesses are better served by outsourcing and continuing to improve their product or service.
• Smaller businesses struggling to qualify for factoring: Factoring companies may offer collection factoring on a probational basis to small businesses that lack the qualifications to use traditional invoice factoring.
• Seasonal companies interested in reducing cash flow variability: Planning and budgeting are far more straightforward when a business knows how much cash to expect and when.

Pros and Cons of Maturity Factoring

Maturity factoring doesn’t offer business owners immediate funding to reinvest in other areas of the business. Collection factoring ensures better management of a company’s receivables because it outsources the process to the factoring company. It provides business owners with the certainty of fund availability on or after the receivables’ due date. However, it can be more expensive than other types of short-term funding.

Maturity Factoring Providers

Most maturity factoring providers have a local factoring operation designed to assist a specific local industry. These industries include service providers like painting and construction companies and long-term product creation services like writing and publishing. We noted two nationwide lenders below. The first offers collection factoring, and the second does not. However, the second has low requirements so that it may fit the needs of some smaller businesses.

Paragon Financial Group: Maturity Factoring

Paragon Financial Group offers up to $10 million in funding but requires at least $30,000 in factored invoices per month. Businesses that qualify can receive low starting rates with an expected APR of 16% to 55%. Paragon Financial has a long history of factoring invoices, and its receivables operation has a great reputation.

BlueVine: Traditional Factoring

BlueVine offers an online invoice factoring solution with a $100,000 annual revenue requirement and funding the next business day. Small business owners need not commit to factoring a certain volume of invoices, with the smallest monthly amount around $5,000. The expected APR is 13% to 70%, and BlueVine charges fees for every week an invoice is outstanding.

Bottom Line

Maturity factoring is another form of receivables factoring that sellers who don’t require an immediate cash advance can use. There are many benefits to collection factoring, the most notable of which is that it enables the seller to outsource its invoice collection and accounts receivable management. One downside is that as with receivables factoring, it’s more expensive than most bank-offered short-term loans.