Receivable Factoring also known as factoring, is the sale
of invoices at a discount. It is simply a method of financing that
is used by businesses to raise capital quickly and improve cash
flow without going into debt. What is so nice about receivable financing
is that you do not have to wait long periods in order to get paid
so that you can pay your suppliers and employees on time. Most businesses
cannot afford to wait 30, 60, or 90 days to collect payment because
this cash crunch prevents them from generating new sales.
When a business delivers goods and services to an Account Debtor
(Customer) an invoice is created. The business can turn around and
sell this Invoice at a discount to a Factoring Company. Normally
invoices carry net 30 terms, but in reality customers pay in the
net 45 - 60 range. If customers continue this practice of stretching
your payment terms, it becomes very hard to cash flow and grow your
business. Factoring allows you to take control of your business
and not be at the mercy of your customers.
of going through the long collection process a business can simply
sell its invoice to a factoring company and receive funding withing
24hrs. The factoring company handles the collection and ensures
the credit worthiness of the Debtors.
first step in the funding process is building a schedule of invoices
that require funding. The factoring company will verify the invoices
and ensure the credit quality of the Debtor. Since the invoice is
sold to the factoring company, the debtor is notified to send payment
directly to the factoring company. Now the factoring company funds
the schedule of invoice and advances between 70% - 90% of the invoice
face value. The percentage advance is based on the average credit
quality of the debtors. After funding we play the waiting game.
After a period of time the debtors make payments to the factoring
company. Once the factor collects the full invoice value the reserve
less the factoring fee is returned to the business owner.
provides over 100 billion dollars to industry each year. Factoring
is not a new form of financing, but rather an old financial service
dating back thousands of years. Multi-billion dollar corporations
rely on factoring right now to finance their growth. Banks traditionally
service these large corporations but often leave smaller sized businesses
out in the cold. Only over the last several years has this void
has been filled by the factoring companies which make funding available
to smaller sized businesses to which banks are reluctant to lend
funds. The typical factoring company is more interested in the credit
quality of the debtor, but the banks won't even look at financing
a company without at least two profitable years in business.
Financing your cash flow and growing your business is relatively
easy with factoring. Most companies that get turned down for bank
financing are refered to factoring companies. About 25% of our business
actually comes from referrals the bank wouldn't process.
Learn more about the benefits