Factoring is an asset based financing method whereby a company uses its account receivable to generate immediate cash flow.
A factoring company purchases your companies account receivable portfolio and will immediately advance up to 95% of its face value. The balance of the funds – less the factors fee and discount – is released back to you once the receivables are
Do you have clients that take 30, 50 or 60 days to pay their invoices? Although having slow paying clients is expected in today’s business environment, they make managing cash flow a very difficult task. Paying suppliers, salaries and rent becomes a challenge.
However, there is a way to solve this problem. The solution involves factoring your invoices.
Factoring is a financing tool that allows you to get your invoices paid in as little as 2 days. It provides your company with the necessary capital to operate the business, pay suppliers and grow. However, factoring is not a business loan. Rather, factoring involves selling your invoices at a discount for immediate cash. The factoring company waits to get paid, while you get immediate use of the funds.
Invoice factoring can easily be integrated to any business and works as follows:
* You deliver goods or services and invoice for them
* You sell the invoice to the factor. They give you the first installment of 70% to 90% of your invoice. This is called the advance.
* You get immediate funds to run your business
* Once the customer pays the factoring company, you get the second installment (of 10% to 30%) and are charged a small fee for the transaction. This is called the rebate
Although receivable factoring costs vary and are based on transaction size and timing, the average cost of a transaction is small % of the invoice per month.
One major advantage of factoring is that it is easier to obtain than a business loan. Furthermore, the the factoring company can be set the financing line in about a week, and the biggest requirement for approval is that do you business with credit worthy clients.